Why Metallurgical Coal Is Not Thermal Coal, and Why It Matters

The coal that feeds a power station and the coal that feeds a blast furnace share a name and very little else. You can have a glut of the first and a shortage of the second at the same time, because thermal coal cannot do the job a steelmaker needs from metallurgical coal. That matters more than it sounds: roughly 69% of the world’s crude steel still comes out of the blast furnace route.

Many investors file all coal under one decarbonisation story. But the two commodities have different buyers, different price drivers and different threats to their future.

Global crude steel output reached about 1.85 billion tonnes in 2025, according to the World Steel Association. Most of that tonnage still depends on coke made from coal.

This explainer gives you a working model of what makes steelmaking coal distinct, where the world’s supply comes from, and how long it is likely to stay relevant to your portfolio.

Why steelmaking coal and power station coal are different commodities

Both are black rock dug out of the ground. Both get loaded onto bulk carriers. Once you follow each one to its end use, though, the similarities stop.

What each coal actually does

Metallurgical coal, also called coking coal or met coal, is the raw input for coke. Coke is a hard, carbon-rich fuel that goes into a blast furnace to turn iron ore into iron.

Thermal coal, also called steam coal, is burned to boil water and spin turbines that generate electricity. Its job ends at the power station.

Why their prices rarely move together

Met coal demand is derived from steel. When steelmakers need a particular blend, they pay for it, even if the wider coal market is soft. Thermal coal answers to gas prices, renewable generation, weather-driven power demand and carbon costs.

The steel split shows where met coal’s floor sits.

How the world made its steel in 2025 Blast furnace-basic oxygen furnace (BF-BOF): 69.4%. Electric arc furnace (EAF): 30.3%, up 1.2 percentage points from 2024. Source: World Steel Association, World Steel in Figures 2026.

For a sense of pricing, BHP realised US$188.58/t for steelmaking coal in H1 FY2026 (July to December 2025), down from US$206.37/t a year earlier. That is a company realised price, not a benchmark spot price.

The takeaway for you: a thesis built on thermal coal’s decline does not transfer automatically to steelmaking coal. They face different substitution threats on different timelines.

How coking coal becomes coke, and what makes a grade premium

That different threat profile starts with chemistry. Only certain coals can survive the trip through a coke oven and come out useful.

Inside the coke oven

Coking means heating coal in the absence of air. The heat drives off volatile matter, and the remaining material softens, fuses and hardens into porous lumps of coke.

Inside the blast furnace, that coke does three jobs at once. It burns as fuel, it acts as a reductant that strips oxygen from iron ore, and it holds up the heavy column of material above it so gases can flow through.

For a coal to qualify, the coke it produces generally needs to meet these standards:

• Carbon content of at least 75% after coking
• Low sulphur, which otherwise contaminates the steel
• Low ash, the non-burning mineral residue
• Suitable Gieseler fluidity, a measure of how plastic the coal becomes as it heats
• Strong CSN, a cold strength measure of how well the coal swells and binds
• Favourable CRI and CSR: the coke reactivity index (how quickly coke reacts with gas in the furnace) and coke strength after reaction (how strong it stays afterwards)

The quality tiers

Price generally falls as quality declines. Here is how the grades line up.

The headline benchmark is premium hard coking coal, FOB eastern Australia, assessed by Fastmarkets. No verified current figure is available, but the market sits well below its 2022-23 peak, and the International Energy Agency (IEA) reported that global met coal trade weakened in 2025 after a record 2024.

When you see a met coal price quoted, the grade matters as much as the number. A producer’s quality mix goes a long way towards explaining why its realised price sits above or below the benchmark.

Low ash and low sulphur targets are rarely met straight from the mine, which is why coking coal washery operations matter: processing is where raw coal is cleaned into a product that meets coke quality specifications.

What “coking properties” mean in plain terms

Coking properties describe how a coal behaves when it is heated without air. Good coking coal melts into a sticky, plastic mass, then sets into a strong, porous solid.

Think about it this way: thermal coal only has to burn well. Coking coal has to melt, bind and harden in a controlled way, then stay strong while being crushed and attacked by hot gas inside a furnace.

Most coal in the world cannot do that. This is why premium supply is hard to replicate, and why you will often see met coal miners described by the quality of their product rather than just their tonnage.

Where the world’s steelmaking coal comes from

Because so few deposits produce coal with the right properties, the map of supply is short.

The five regions that matter

• Australia: Queensland’s Bowen Basin, regarded as the source of the world’s highest-quality hard coking coal
• United States: the Appalachian basin, especially Virginia and West Virginia
• Canada: the Elk Valley in British Columbia, now run by Glencore (77%), with Nippon Steel (20%) and POSCO (3%), after Teck’s exit
• Russia: Siberian coal from the Kemerovo region
• Mozambique: the Moatize operation, formerly Vale’s and now operated by Vulcan/Jindal Group

Ownership is shifting too. Anglo American agreed in May 2026 to sell its Australian steelmaking coal assets to Dhilmar for up to US$3.875 billion, with completion expected by Q1 2027; the deal had not closed as of this month.

Source: Australian Department of Industry, Resources and Energy Quarterly, December 2025. The IEA puts Australia closer to 142 Mt for 2025, a gap that likely reflects timing and methodology. The IEA also estimates total seaborne trade fell about 7% in 2025 to 345 Mt.

What can disrupt supply

Concentration brings fragility. Queensland rainfall, cyclones and flooding can halt mines and rail lines.

Incidents matter too. Glencore’s Australian output fell 12% in H1 2025 after a water inrush temporarily suspended Oaky Creek. BHP’s BMA joint venture produced 18.0 Mt (100% basis) in FY2025, a 19% decline, at a unit cost of US$127.50/t, which shows how labour and cost inflation squeeze Queensland margins.

Sanctions add another layer. According to the Asia Pacific Energy Research Centre (APERC), Western restrictions pushed Russian met coal toward China, India and Southeast Asia without fully replacing its lost European, Japanese and Korean buyers.

For you, this means a producer’s location and cost position shape how well its earnings hold up when the next shock arrives.

Readers interested in the ownership shift can read our full explainer on Anglo American’s Queensland coal sale, which details what the asset change means for Bowen Basin supply.

How long will the blast furnace keep steelmaking coal relevant?

Supply is only half the question. The bigger long-term issue is whether the furnaces that consume this coal stay lit.

Start with the 69.4% share. Replacing most of that with electric arc furnaces (which melt scrap using electricity) and direct reduced iron, or DRI (iron made by stripping oxygen from ore with gas or hydrogen rather than coke), runs into real limits.

Why the blast furnace is hard to replace

1. Scrap is limited. Supply depends on the steel already in use, and fast-growing economies have less of it.
2. Ore grade is a barrier. DRI needs high-grade, low-impurity ore, while much global supply suits blast furnaces.
3. Hydrogen and power are costly. The IEA estimates early 100% hydrogen plants cost 50-140% more than BF-BOF, and that hydrogen DRI needs electricity below about US$35/MWh to compete under its assumptions.
4. Furnaces last decades. Operators often reline and upgrade rather than replace.
5. Asian demand is growing. India and Southeast Asia keep adding conventional capacity.

Change is visible all the same. Tata Steel closed its final Port Talbot blast furnace in September 2024, and Stegra and HYBRIT are advancing hydrogen steel in Sweden. Yet ArcelorMittal cancelled its German DRI and EAF conversions in June 2025, a reminder that economics can stall the shift. Global Energy Monitor found EAF capacity grew nearly 11% in the first half of the decade, with 24% more projected by 2030.

The scenario gap Wood Mackenzie sees seaborne met coal trade at about 142 Mt in its net-zero case, against 378 Mt in its base case.

Bull and bear views for investors

The realistic verdict is longer-lived demand, not permanent demand. Met coal looks set to stay relevant through the 2030s, but as a smaller, more volatile and more quality-sensitive market. The question for you is how fast tonnage shrinks and whether premium grades keep their edge, because that decides which producers are exposed.

Chinese steel export dumping is one transmission channel for the bear case, since cheap exports undercut mills elsewhere, cut their coke demand and squeeze met coal margins for high-cost producers.

Past performance does not guarantee future results. Scenario projections are speculative and subject to market conditions, policy and technology developments.

What this means for how you read the steelmaking coal story

Three points carry through. Steelmaking coal is a separate commodity from thermal coal. Grade and region drive its value. And its relevance is long, but not unlimited.

When you weigh a met coal producer, three variables deserve your attention:

• Chinese steel output, the largest swing factor in seaborne demand
• The pace of EAF and DRI adoption, which sets how quickly tonnage erodes
• Premium supply additions or closures, which decide whether quality keeps commanding a premium

Watch those three and you will read each new price move or asset sale in context, rather than through the blunt lens of “coal”.

This article is for informational purposes only and should not be considered financial advice. Investors should conduct their own research and consult with financial professionals before making investment decisions.