It seems like the headwinds for Australia’s thermal coal industry are intensifying with news overnight that Norway’s $916 billion Sovereign Wealth Fund will further downgrade its investments in companies which are heavy users of coal.
The FT reports this morning that the Government and Opposition parties in Norway have come to an agreement that “the fund should withdraw investments from companies whose business relies more than 30 per cent on coal, measured either by revenue from fossil fuel or by the percentage of power they generate from it.”
That’s the Hunter Valley mining industry’s major customers – power companies.
Of course, most of the Hunter Valley – Australia’s – thermal coal customers are based in Asia. But coal prices have been falling steadily since 2011 and this move by Norway is aimed at making “a huge difference,” Terje Breivik, a Liberal party member of the finance committee, told the FT. “It will have influence on ordinary miners and energy companies.”
The move comes on the back of China’s “everything-but-coal” strategy which, according to analysts at Citibank, will see “China to move from its current position as the worldâ€™s largest net importer to being essentially in balance by 2025”.
Which is partly why Citibank is lowering its long-run thermal coal price forecast to $80/t from $90/t (NEWC).
But the big driver and the one that ties the Citibank forecast back to actions in Norway is a structural decline in demand for thermal coal.
Global thermal coal demand is suffering from increasing environmental pressure and competition from natural gas and renewable energy. Moreover, Chinese demand is likely to peak as growth slows and the economy transitions away from manufacturing and investment led growth.
In its recent Statement on Monetary Policy, the RBA said mines have been shuttered and expansion plans shelved “in light of lower profitability”.
It seems things could get much worse for thermal coal producers in the years ahead.