Morgan Stanley says Australia’s $14 billion thermal coal export industry can be part of the solution to the global emissions abatement challenge, as well as commanding premium pricing.
Its twin call is based on the move towards new high-efficiency, low-emissions (HELE) coal-fired power stations in the Asia-Pacific region, leading to more demand for the higher quality coals Australia produces.
“The common perception is that coal-fired power has no role to play in a low-emissions future,’’ Morgan Stanley said.
“We believe this is not the case, as carbon emissions can be reduced by over 20 per cent (in HELE plants), with the benefit further complemented by further reduction through the use of higher energy coal.’’ The investment bank said that despite perceptions, thermal coal was not facing a permanent decline in the face of the need to reduce emissions.
“In the ASEAN market, demand for coal should be steady in absolute terms, and within this, demand for high-quality, high-energy thermal coal will likely rise,’’ Morgan Stanley said. It added that leading coal producers Whitehaven, BHP Billiton and Rio Tinto stood to benefit.
Minerals council chief executive Brendan Pearson said the Morgan Stanley analysis demonstrated that “far from being in structural decline, Australia’s coal sector has a bright future”.
“It is analysis based on cold hard facts, not wishful thinking. It underlines the fact that coal in general, and Australian coal in particular, will play an indispensable role in Asia’s energy mix for decades,’’ he said.
“There are 1926 coal-fired power generation units under construction or planned in east and south Asia. Eighty two per cent of these plants are modern, super-efficient plants that work best with high-energy, low-ash coal that is Australia’s speciality. These plants deliver affordable energy with sharply lower CO2and particulate emissions, which is why they will play a fundamental role in Asia’s energy mix,’’ Mr Pearson said.
The Morgan Stanley report did not predict any sharp rebound in thermal coal prices. But it saw “premium coals getting a premium price as power generators seek improved efficiency’’.
“Based on the efficiency of the HELE plants, and the value-in-use of high energy coal, we have applied a 5 per cent realised price premium for specific companies,’’ Morgan Stanley said.
Any premium would be welcome given the fall in thermal coal prices in recent years. Prices have staged a tentative recovery this year to $US58 a tonne but remain well short of the 2011 price of more than $US120 a tonne.
The government’s chief commodities forecaster, the Department of Industry, Innovation and Science, said last week that thermal coal export earnings were forecast to fall by 7 per cent to $13.7bn in 2016-17 because of a slight decline in export volumes and persistent low prices.
“Exports are expected to be constrained by the suspension of production at a number of mines and subdued global import demand,” it said.’
World trade was forecast to remain broadly stable in 2016 and 2017 at about 1.05 billion tonnes (Australia exports about 200 million tonnes annually), with the future of imports into India the downside risk to the outlook.