The New South Wales (NSW) state government has recently issued a directive that requires coal miners in the country, including Glencore, to reserve a significant portion of their production for domestic use for the next 15 months. The move is part of a national effort to address soaring energy prices, which have been on the rise for several years. The policy will be in effect until June 2024, and coal sold under this directive will be capped at $125 per tonne, which is well below the spot market rates and the price that some Australian miners have received for exported coal in the past year.
Coal miners, including those that do not currently supply local power plants, are subject to this new directive. The NSW state government announced in January that it would expand the policy to include these coal miners, and the directive has caused concern for companies that may face significant costs in complying with the directive.
Glencore, which produces about 30% of NSW’s thermal coal, is expected to provide up to 65% of the coal shortfall, according to the updated directions. Glencore is critical of the policy and said, “We don’t know how the NSW Treasurer can talk about levelling the playing field for coal companies.”
Yancoal Australia and Whitehaven have also expressed concerns about the impact of the policy on their operations. Yancoal will make up to 310,000 tonnes of coal available per quarter for domestic use from April 2023 to June 2024. Whitehaven, on the other hand, will set aside either 200,000 tonnes or 5% of each of its mine’s thermal coal production per quarter, whichever is lower.
Stock prices of these companies have fallen significantly in response to the new directive. Shares in Whitehaven fell as much as 12.3% to hit a near six-month low before paring most gains to trade down 2.7%. Yancoal stock also dropped 2.3%, while fellow coal miner New Hope Corp slipped 3.8%.
The NSW government has not provided any compensation to these companies for the difference between market rates and the price they receive selling volumes under the policy. However, some coal miners may be eligible for compensation in certain situations if costs incurred exceed the capped price of coal.
BHP Group and Peabody Energy, two of the largest mining companies in the world, will also have to comply with the legislation. BHP has stated that the new policy could affect its plan to keep its Mt Arthur coal mine, the state’s largest single coal mine, open until 2030.
The new policy is a response to rising energy prices and the need to limit exports in favor of domestic consumption. While the directive is seen as a significant challenge for coal miners, it is also a step towards greater energy security for Australia. The country is heavily reliant on coal for its energy needs, and the government hopes to ensure that this dependence does not become a significant problem in the future.
Conclusion
The NSW state government’s directive to reserve coal for domestic consumption is a significant challenge for Australian coal miners. The policy will be in effect for the next 15 months and is part of a national effort to limit energy prices. While the policy is a positive step towards greater energy security, it has caused concern for coal miners that must now reserve a significant portion of their production for domestic use. The impact of the policy is yet to be seen, but it is likely to be significant, given the fall in stock prices of companies affected by the directive.
