A few takeaways from BHP's latest market update1) Will met coal...

A few takeaways from BHP's latest market update

1) Will met coal be replaced - Not for many decades according to BHP
On the topic of technological disruption, our analysis suggests that blast furnace iron making, which depends on coke made from metallurgical coal, is unlikely to be displaced at scale by emergent technologies for decades. The argument hinges partly on the sheer size of the existing stock of long–lived BF–BOF capacity (70% of global capacity today, average fleet age22 of just 13 years in China – the major producer – and around 18 years in India – the key growth vector for metallurgical coal trade). It also highlights the lack of cost competitiveness and technological readiness (or both) that is expected to inhibit a wide adoption of potentially promising alternative iron and steel making routes, or high–cost abatement levers such as hydrogen iron making and carbon capture, use and storage (CCUS), for a couple of decades at least in the developing world. Notwithstanding the sweet spot in profitability in calendar 2021 under record pricing in many regions, steelmaking is typically a low margin industry where every cent on the cost line counts. Calendar 2023 was a reminder of that fact.

2) The Quality of Met coal is diminishing
In coming years, most committed and prospective new metallurgical coal supply is expected to be mid quality or lower, while industry intelligence implies that some mature assets that have historically produced higher-quality coals are drifting down the quality spectrum as they age.

3) Better quality coal is needed for decarbonisation in China (Fat coal?)
Longer term, we argue that a policy focus on safety, environmental considerations, and financial sustainability in Chinese coal mining, in addition to the intent to embark upon a decarbonisation path for steel making, should highlight the competitive value of using higher–quality Australian coals in China’s world class fleet of coastal integrated mills. China’s steel industry is still in the optimisation phase of its decarbonisation journey, in which higher-quality raw materials make a clear difference to the energy and greenhouse gas (GHG) emissions intensity of the BF–BOF route, which accounts for around 90% of Chinese and around 70% of global crude steel production.