Australian met coal outlook not as strong as banks and investors think

Years after global banks began shifting away from backing thermal coal for power generation, most continue to offer finance to metallurgical (met) coal used in the steel industry.

Such banks often claim that while technologies such as solar, wind and batteries offer cost-competitive alternatives to coal-fired power, no such alternative exists for met coal-based steelmaking.

ANZ, for instance, states, “We acknowledge that there are no readily available and commercially viable substitutes for the use of metallurgical coal in steel production at-scale. We continue to support our metallurgical coal mining customers.”

This statement is fundamentally flawed and becoming less accurate by the week. Already, about 30% of global steel is made without the need for met coal, and this is expected to grow significantly.

ANZ is far from alone in its outdated position on met coal — Macquarie Bank has changed its position from its 2021 target on this issue. 

In 2021, Macquarie announced a target to have zero on-balance sheet lending to all coal companies by the end of 2024, a target it achieved. But in November that year, the bank reversed course and resumed lending to met coal, citing “limited viable alternatives”.

NAB states, “currently there are no readily available substitutes for the use of metallurgical coal in steelmaking”, while Westpac says support for met coal “is vital” for large-scale steel production. However, both have policies in place restricting them from financing greenfield met coalmines.

Bank policy blind spots on met coal are not limited to Australia. Many European banks — which led the global banking shift away from thermal coal — still don’t have met coal lending policies.

Major investors are also sticking with met coal despite having exited thermal coal on emissions and climate grounds. AustralianSuper — the largest superannuation fund in Australia — dumped its holding in thermal and met coalminer Whitehaven back in 2020. Since then, Whitehaven’s coal output has grown significantly thanks to the acquisition of met coal operations in Queensland. AustralianSuper viewed this expansion (and the customer base geared towards India) as an opportunity to reinvest in Whitehaven, and is now its biggest shareholder by far with a 13.7% stake.

Alternatives to met coal are mature, available at scale and expanding

Countries all over the world are shifting away from met coal-based steelmaking. In the US, more than 70% of steel is made from recycling steel in electric arc furnaces (EAFs), supplemented by some direct reduced iron (DRI) and pig iron.

This demonstrates the direction of travel for other nations. In the EU, 45% of steel is already made in EAFs. With numerous DRI plants under development, the region is heading towards a steel sector based on recycling steel in EAFs, supplemented with some DRI — without the need for met coal.

Major Japanese steelmakers Nippon Steel and JFE Steel have begun their shift away from met coal-based steelmaking towards EAFs. Meanwhile, this month the South Korean government announced a USD747 billion energy transition plan. Among other targets, it aims to accelerate the decarbonisation of five key industries, including steel, with the aim of becoming the first country to mass produce steel made from hydrogen in place of met coal.

Midrex, the world’s biggest supplier of DRI technology, tracks growing global DRI capacity that makes iron without met coal. Since 2020, worldwide DRI capacity has increased by 44%, with growth set to continue.

In August, Canada announced support for CAD70bn in clean energy investment as well as high-grade iron ore mining, which will increase availability of iron ore suitable for DRI and could propel the country into green iron production, replacing met coal.

The shift away from met coal is not limited to developed nations. China — the world’s biggest steelmaker by far — is already using less met coal as its steel demand continues to decline. In addition, China will recycle increasing amounts of scrap steel, further reducing the use of met coal. China’s uptake of DRI-based steelmaking is also under way.

India will disappoint Australian met coal miners

The Australian met coal sector often points to India’s growing steel industry as the source of future demand for its production. However, in reality, India is proving to be something of a disappointment to Australian met coalminers.

Concerned about the energy security implications of over-reliance on one country, India has been diversifying its sources of met coal imports away from Australia in recent years. India relied on Australia for about 80% of its met coal imports in 2020. This reduced to 37% in the first half of 2026, according to S&P Global. India’s met coal imports from Australia were down 7.4% in H1 2026 compared with the prior year. 

India’s shift away from Australia is a reaction to growing concerns about the long-term supply of Australian met coal. The Australian government continues to revise down its forecasts for met coal exports (see figure below). A key Australian High Court ruling this month on coalmine approvals and carbon emissions only adds further doubt. 

India’s diversification away from Australia has coincided with the exit of large, diversified miners from met coalmining. Australian pure-play coalminers, with large cash balances following Russia’s expanded invasion of Ukraine and resultant spike in coal prices, took the opportunity to acquire operational coalmines rather than open up new capacity. Australian met coal capacity is increasingly in the hands of companies that do nothing but mine coal.

Diversified miners were willing sellers. South32 and Anglo American both exited Australian met coalmining. Rio Tinto had divested in 2018.

Although it has offloaded some of its operations, BHP is sticking with met coal, and continues to suggest carbon capture and storage (CCS) can enable its long-term use in a decarbonised global steel sector despite all evidence to the contrary. 

While the global steel sector shifts away from met coal, BHP is still seeking approvals to extend met coalmine operations in Queensland’s Bowen Basin. Yet at the same time, the company has stated its Queensland met coal operations can no longer compete for investment, and it was making zero returns from the business.

All told, the prospects for banks to find opportunities to finance met coal projects appears increasingly limited. This is perhaps reflected in the policies of the banks that have already updated their met coal financing policies.

France’s Société Générale was an early adopter of met coal lending restrictions, and it excludes all met coalmine projects whether they are greenfield or brownfield extensions of existing mines. It won’t enter into new banking relationships with companies deriving more than 50% of their revenue from met coalmining.

This year, the UK’s NatWest Bank updated its policies to exclude project finance for new met coalmines, and ceased to claim met coal was essential for the steel industry.

NatWest’s move is aligned to the continuing steel technology transition and the long-term outlook for met coal, which is no better in Australia — by far the world’s largest exporter. The prospects for Australian met coal are dimmed by the steel technology transition and continually downgraded export forecasts. India’s energy security and steel input cost concerns put further pressure on Australian met coal’s outlook.

Met coal is no longer essential to the future of the steel sector, and more bank policies should reflect that reality.