Thermal and metallurgical coal prices are in the doldrums due to slower economic growth and energy demand, and softer steelmaking in China, respectively. With the supply of both types of coal solid, higher-cost producers are starting to reduce or cease production, with some going out of business.

Why it matters: Cuing off the futures curve, our assumed average metallurgical coal price from 2025 to 2027 is now around USD 210 per metric ton, up from about USD 195. Our assumed average thermal coal price over this period falls to about USD 115, down from around USD 120.

  • Based on our estimates of the long-run marginal cost of production, our assumed midcycle prices from 2029 are unchanged at about USD 160 for metallurgical and USD 107 for thermal coal.

The bottom line: We retain our AUD 9.00 fair value estimate for no-moat Whitehaven, with higher metallurgical coal prices broadly offsetting lower thermal coal prices. However, the latter drives a 4% reduction in no-moat New Hope’s fair value, to AUD 5.50.

  • No-moat Glencore’s fair value of GBX 460 stands. Higher base metals and metallurgical coal prices broadly offset reduced thermal coal prices and currency movements since our last update.
  • New Hope is undervalued by 29%, Whitehaven by 26%, and Glencore by 23%. Weaker near-term coal prices are the main driver, although higher base metals prices led by copper on supply concerns have driven Glencore shares higher recently.

Big picture: The energy transition is likely to occur more slowly than the market assumes. Attempts to reduce harmful emissions are likely to first reduce demand for lower-quality coals than the high-energy, low-ash coal produced by Whitehaven, New Hope, and, to a lesser extent, Glencore.

  • Green steel technologies are unlikely to be economic at scale for decades. Blast furnace steelmakers are likely to instead focus on reducing emissions by favoring higher-quality metallurgical coal such as that produced at Glencore’s EVR operations in Canada.

Whitehaven (ASX: WHC)

Whitehaven shares are trading at a 27% discount to our Fair Value of $9.

Whitehaven Coal offers exposure to global energy and steel demand via thermal and metallurgical coal production. Its mines are in New South Wales and Queensland. Salable coal production expanded from 10 million metric tons in fiscal 2014 to about 14 million metric tons in fiscal 2022, largely due to the ramp-up of Maules Creek and the expansion of the Narrabri mine. It purchased the Blackwater and Daunia metallurgical coal mines in Queensland from BHP and Mitsubishi in April 2024, but it sold a 30% stake in Blackwater to two Japanese steelmakers in March 2025. Equity output is expected to grow to 31 million metric tons by fiscal 2030, split roughly 60% coking coal and 40% thermal coal.

Favorable coal prices are critical to generating excess long-term returns, but on this front we’re circumspect. Poor coal prices in response to the global recession caused by the coronavirus along with production difficulties at Narrabri saw the firm’s balance sheet quickly deteriorate. However, from losses in fiscal 2021, elevated coal prices in the wake of the Russia-Ukraine war saw the company quickly repay debt and move into a net cash position. After purchasing Blackwater and Daunia, it is once again in a net debt position, but we expect it to return to a net cash position over our forecast period.

Whitehaven is a price-taker, meaning maintainable competitive advantage requires low capital and operating costs and long-life mines. Its early mines had relatively high operating costs and produced mainly thermal coal. Narrabri and Maules Creek in particular have reduced group cash costs and increased semisoft metallurgical coal production. Its Queensland mines are higher cost but also higher margin than its New South Wales mines, given their production is predominantly metallurgical coal that attracts a premium to thermal coal.

However, coal mining is a capital-intensive business and some assets were acquired through relatively expensive acquisitions, the cost partly assuaged through the use of overvalued shares. We forecast midcycle ROIC below its WACC, supporting our no-moat rating.

New Hope (ASX: NHC)

New Hope shares are trading at a 28% discount to our Fair Value of $5.50.

New Hope offers exposure to global energy demand via increasing thermal coal production at a time when many other miners are winding down or selling their thermal coal assets. The strategy relies on demand for high-quality thermal coal remaining robust longer-term. The purchase of a further 40% interest in the Bengalla coal mine in New South Wales in 2018 took its ownership of Bengalla to 80% after the company purchased its initial 40% stake in 2016. Along with the development of New Acland Stage 3, this sees New Hope reliant on thermal coal. We forecast equity sales of thermal coal to rise to about 13 million metric tons in fiscal 2030, up from roughly 10.5 million in fiscal 2025, driven by the ramp up of New Acland Stage 3.

Asia will likely remain the relative bright spot for demand for the high-quality (high energy, low ash) thermal coal produced by New Hope, driven by the region’s fleet of young, high energy low emission coal-fired power stations. Both Bengalla and New Hope remain in or around the lowest quartile of the thermal coal cost curve. As such, we think companies higher up the cost curve that produce lower-quality coal are more likely to be affected by likely falling demand for thermal coal in coming decades.

As a commodity producer, New Hope is a price taker and needs low-cost mines with long lives and a low installed capital base to support persistent longer-term excess returns. Cyclicality is to be expected in mining and in the near-term high earnings support a return on invested capital, exceeding New Hope’s cost of capital. However, our forecast midcycle ROIC that is similar to the company’s WACC, reflecting a normalization of coal prices, supports our no-moat rating.

The firm has substantial additional resources elsewhere in Queensland and a 23% stake in Malabar Resources, which owns the Maxwell metallurgical coal mine in New South Wales. The mine commenced production in 2023 and likely has a mine life of more than two decades, with unit costs in the bottom quartile of the industry cost curve. It provides some modest diversification into metallurgical coal.

Risk to coal producers

The principal risk is a persistent fall in coal prices. Coal is abundant and high prices encourage investment, which increases supply and eventually weighs on prices. Thermal coal use may decline as environmental awareness and regulations increase. Increasing adoption and falling costs of alternative energy sources, such as solar and wind, can threaten coal-fired electricity generation. In our view, rising consumption in Asia will likely support demand for high-quality thermal coal, with a substantial amount of high-capital-intensity, low-emission coal power fleets in the region still young in their operational lifecycle.

Coking coal used in the steel manufacturing process may also decline if Chinese steel demand reduces and/or steel production from scrap satisfies a greater share of future demand, as we expect. Demand for semisoft coking coal can also suffer when steelmaker margins are high and better-quality hard coking coal is preferred to boost blast furnace productivity. However, it generally still commands a premium to thermal prices through the cycle. When coking coal is scarce, it tends to trade closer to the coking coal price; when it’s abundant, semisoft coking coal tends to trade closer to the thermal price.

Exchange rates can reduce the competitive position of Australian coal miners in the global market.

On the ESG front, while the risk of carbon prices is likely to raise costs for downstream customers, we think the rising challenges in bringing on new coal supply mean long-term prices should still be supportive of returns for miners, particularly those supplying higher-quality coal. However, we expect lower-quality coal from places such as Indonesia and Colombia to be disproportionately affected. There is also the risk of community opposition threatening its license to operate, and ability to bring on new developments.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.