Shares in coal companies have experienced mixed performance recently. Demand for metallurgical coal, used in steel production, has remained strong in 2024, with continued demand from global steel producers.
Metallurgical coal is a critical input in steelmaking, and there are limited viable alternatives, which means the price has been resilient.
In contrast, the demand for thermal coal for power generation has softened somewhat as significant economies have shifted towards renewable energy sources. This decline in demand has led to falling thermal coal prices this year. However, demand from developing countries where coal is still vital to the energy mix has remained steady.
In this article, we explore ASX coal stocks and the benefits and risks of investing in them.
What are ASX coal stocks?
ASX coal shares are companies that produce coal and trade on the Australian Securities Exchange. They include mature mining companies with one or more coal mines already in operation, junior miners with projects in development, and exploration companies seeking new coal deposits.
Coal shares can be a good option for an investor seeking exposure to the coal price without actually buying the physical commodity. However, not all coal stocks move in perfect harmony with coal prices.
For example, a coal miner may have unique risks – perhaps it is highly leveraged, or its coal mine only has a short useful life. These risk factors can often cause its stock price to move differently from the coal price.
Various ASX exchange-traded funds (ETFs) can also offer investors some exposure to coal shares (and the coal price). For example, the BetaShares Australian Resources Sector ETF (ASX: QRE) invests in the largest ASX resources companies. This includes BHP Group Ltd, one of Australia's biggest coal producers.
Why invest in ASX coal shares?
Coal-fired power plants currently generate around 36% of the world's electricity. This percentage has been declining as more countries transition to renewable energy sources. However, coal is estimated to still account for 15%–25% of global electricity generation in 2040.
This means that demand for coal will remain strong for years to come, especially in countries like India, where coal remains a key energy source.
Australia produces around 6% of the world's coal and is the largest exporter globally, particularly metallurgical coal. Some of the world's largest coal mining companies trade on the ASX, making it especially easy for Australian investors to add some coal exposure to their portfolios.
Top coal shares on the ASX
Here are three top ASX coal shares ranked by market capitalisation from high to low.
| Company | Description |
| BHP Group Ltd (ASX: BHP) | One of the world's largest mining companies |
| Whitehaven Coal Ltd (ASX: WHC) | Leading global producer of thermal coal |
| Yancoal Australia Ltd (ASX: YAL) | A leading producer of thermal and metallurgical coal |
BHP
BHP is among the world's largest diversified miners and one of Australia's biggest coal producers. However, over recent years, it has taken significant steps to reduce its exposure to coal as part of its broader strategy to align with global decarbonisation efforts. The company has shifted its focus away from thermal coal and is divesting its thermal coal assets.
While BHP has reduced its thermal coal exposure, it continues to be involved in the metallurgical coal sector. BHP still operates some of the world's largest metallurgical coal mines, particularly in Queensland's Bowen Basin. However, the company has indicated that it will increasingly prioritize commodities linked to clean energy, such as copper and nickel, while also committing to reducing the carbon intensity of its operations.
Whitehaven
Whitehaven Coal's primary business activities include coal mining, processing, and exporting. A leading global producer of high-quality thermal and metallurgical coal the company has four operational mines in New South Wales which are known for their low-cost, high-quality coal reserves.
Whitehaven exports most of its coal to energy and steel production markets in Asia, including Japan, South Korea, and Taiwan, where demand for Australian coal remains strong due to its efficiency and relatively lower emissions compared to lower-grade coal.
While Whitehaven has benefited from high coal prices in recent years, the company also faces challenges from increasing global pressure to reduce carbon emissions. As a result, Whitehaven has been balancing its operations by improving environmental sustainability efforts while continuing to supply coal to meet the ongoing energy needs of its key markets.
Yancoal
Yancoal is one of Australia's largest coal producers, primarily engaged in the mining, processing, and sale of both thermal and metallurgical coal.
The company operates several major coal mines across New South Wales, Queensland, and Western Australia. It exports a significant portion of its coal to markets in Asia, particularly China, Japan, and South Korea, where demand for high-quality Australian coal remains robust for both energy generation and steelmaking.
Yancoal focuses primarily on thermal coal but also has a substantial presence in the production of metallurgical coal. The company has benefited from strong coal prices in recent years, but like other coal producers, it faces long-term challenges due to the global shift towards cleaner energy sources.
Yancoal is majority-owned by Chinese company Yankuang Energy Group, which gives it significant ties to the Chinese market, one of the world's largest coal consumers.
How are coal shares being affected by global events?
Global coal prices have been highly volatile in 2024, primarily driven by fluctuating demand and supply dynamics. While thermal coal prices have declined due to reduced demand for electricity generation in key markets like Europe, metallurgical coal has fared better due to ongoing demand from the steel industry.
The war in Ukraine has continued to affect global energy markets. When the war began, the disruption of Russian coal and energy supplies led to short-term spikes in coal prices, benefiting ASX coal companies. However, as the global energy market stabilised and countries adapted by shifting more towards renewables and alternative energy sources, the price of coal has softened.
China, a major importer of Australian coal, experienced an economic slowdown in 2024, reducing its demand for thermal coal. The weaker-than-expected recovery post-COVID, combined with the country's accelerated transition to renewable energy, has further reduced its reliance on imported coal, directly impacting the revenue of ASX coal exporters.
Global supply chain disruptions, rising inflation, and increased operational costs have also affected ASX coal companies. Higher labour, equipment, transport costs, and rail and port logistics disruptions have impacted production and export capabilities, leading to reduced margins.
Benefits of investing in coal shares
Coal is still the planet's leading source of electricity, so demand for coal will remain even as countries pursue alternative energy sources. Although thermal coal demand may decline in the long term due to the transition to renewable energy, demand for metallurgical coal is expected to remain robust.
This positions ASX-listed coal companies involved in metallurgical coal production to benefit from continued global demand.
Investing in coal shares can provide exposure to global markets, with many ASX coal companies exporting a large portion of production to energy-hungry countries such as India and Japan. These markets rely heavily on thermal and metallurgical coal, and their growing industrial needs provide a stable demand for Australian coal producers.
And the cons?
The major drawbacks to investing in coal are ethical considerations. Coal is one of the most polluting energy sources, contributing significantly to greenhouse gas emissions and climate change. Many investors simply do not wish to be exposed to an industry that is so damaging to the environment.
Additionally, many governments are implementing stricter environmental regulations, including carbon taxes and emission reduction targets, which can increase operational costs for coal companies and reduce profitability.
Coal prices can also be volatile, influenced by global demand fluctuations, geopolitical events, supply disruptions, and changes in government policies. While price spikes can benefit coal companies in the short term, price declines can lead to significant revenue and profit drops.
What might the future look like for ASX coal stocks?
The future of ASX coal shares is subject to several critical factors, including global energy transitions, demand fluctuations, and regulatory pressures.
On one hand, coal remains a significant energy source for many developing countries and regions that depend on its affordability and availability. This means demand for Australian coal, particularly high-quality thermal and metallurgical coal, could remain steady in the near term.
Long-term prospects for coal shares are more uncertain due to the growing momentum of global decarbonisation efforts. Many countries, including Australia's key coal export markets like China and Japan, are accelerating their shift toward renewable energy sources and reducing their reliance on coal.
This transition is also driven by investor and regulatory pressures that push companies toward cleaner energy alternatives. As such, while coal shares may experience cyclical highs, the sector's future will likely face headwinds from the inevitable decline in coal demand over the longer term as the world continues moving toward more sustainable energy sources.
Are ASX coal shares right for you?
Because of its importance in energy creation and steel production, coal will likely remain an in-demand commodity for years to come. This is despite global efforts to lower carbon emissions and transition to renewable energy sources.
However, the industry faces risks. Government regulations, carbon taxes, and other financial disincentives could make survival challenging for junior and emerging coal mining companies.
Whether you choose to invest in coal miners will likely depend on your personal values. Regardless of the long-term trends for the sector, you simply may not be comfortable investing in coal miners because of how much they contribute to climate change.
However, if you do wish to diversify into coal, one or more of the companies listed in this article may be a good place to start.
With additional reporting by Motley Fool writer Kate O'Brien.
