Asia’s metallurgical coal bet risks creating billions in stranded assets: Report

Unlike thermal coal, which is being rapidly displaced by renewables in the power sector, metallurgical or met coal was thought to be indispensable for the blast furnaces that forge the world’s steel. But not anymore. A new report from Zero Carbon Analytics found that the industry is heading toward a massive oversupply and a wave of stranded assets.

Despite growth projections from mining giants and governments, particularly in Australia and Indonesia, the report found that global demand for met coal has already plateaued. 

The main downfall in demand will come from China, whose economy is shifting away from infrastructure-heavy growth toward services. Also, as green steel technologies gain a foothold, the window for profitable coal expansion will taper down.

While met coal demand growth in India and Southeast Asia is expected to grow, the report found that it will not be enough to offset the combined declines in China, Europe, and Japan.

Reliance on Asia for demand

China, which accounts for the lion’s share of global steel production, is seeing its met coal demand slump. Projections from the IEA suggest a decline of 77 million tonnes in Chinese consumption by 2030, cited the report. 

Parallely, India is expected to see a 26 million tonne increase in consumption by 2030, partially offsetting the sharp declines seen in China. However, this growth is set against a backdrop of a global iron and steel sector that accounts for 11% of carbon emissions, found the report. But this sector is also under intense pressure to transition to cleaner ways. 

According to the report, banks provided nearly $22 billion in financing for met coal mine developers between 2022 and 2024. Meanwhile, institutional investors hold roughly $30 billion in securities linked to these projects.

There are currently over 250 met coal projects in the global pipeline, according to the report. If all proceed, they would increase global capacity by 52%.

Crucially, the technology of steelmaking is changing. The iron and steel sector is responsible for roughly 11% of global carbon emissions, making it a primary target for decarbonization.

“Mining houses and financial institutions banking on robust demand run the risk of exposure to stranded assets,” the report states. These investments in mines may never pay back their capital as the market moves toward oversupply and carbon taxes, like the EU’s Carbon Border Adjustment Mechanism (CBAM), begin to penalise high-carbon imports.

Traditional blast furnaces, which require met coal as a reducing agent, are increasingly being replaced by Electric Arc Furnaces (EAFs). These furnaces run on scrap steel or green iron which is processed using green hydrogen instead of coal. While still in early stages, green steel is moving from pilot plants in Sweden to industrial-scale projects in China and India.

To avoid a chaotic economic correction, the report urges governments to pivot. Recommendations include scrapping subsidies for traditional steel, lowering industrial electricity prices to favor electrification, and using public procurement to create a guaranteed market for green steel.