TUESDAY'S federal budget was framed on commodity price assumptions that included a fall in thermal coal from $US438 a tonne to just $US60 a tonne by July this year.
This is at odds with its own Department of Industry, which last month forecast elevated coal prices for another two years, and with a host of other forecasters, including the International Energy Agency (IEA)
Treasury was asked yesterday why the budget forecasts coal to "unwind ... by the end of the March quarter of 2023, to levels consistent with long-term fundamentals", but no reply had arrived by deadline.
While some industry sources said the low price prediction was part of the "narrative" of demonising coal, others pointed to the "extra" tax revenue the government will receive when prices exceed the deliberately conservative budget predictions.
In a list of commodity price assumptions, Budget Paper One assumes the spot price for thermal coal will fall from record highs of $US438 a tonne to just $US60 a tonne by June 30 next year.
Metallurgical (coking) for steelmaking is assumed to fall from $US271 a tonne to $US130 a tonne.
As the above graph from the IEA's July coal market report shows, the agency expects thermal coal prices to remain well above $US200 a tonne until at least the middle of 2024. Earlier predictions were much lower.
Coking coal and thermal coal for electricity generation trade in separate markets, and thermal coal prices are now so high that they have reversed more than half a century of price differential. Coking coal often sold for twice the price of thermal coal, but the severe shortage of power station coal has effectively reversed the equation.
The most recent Resources and Energy Quarterly, published last month by federal Industry Department, expects metallurgical coal to still be at about $US220 a tonne in 2024.
The Industry Department expects thermal coal to fall from an average of $US333 a tonne this year to "around $US125 a tonne in 2024 (still well above historical averages").
About 85 per cent of the coal exported from Newcastle is thermal coal.
The Industry Department blames wet weather, COVID and the Russian invasion of Ukraine for the record prices, but some industry watchers say that with governments increasingly reluctant to approve new mines, production is permanently restrained, creating shortages driving prices higher.
