Coal production is expected to be hit in Australia due to a downturn in prices, spurred by low demand from China and a supply surplus, according to a report by Timetric.

Titled ‘Coal Mining in Australia to 2020‘, the report mentions that the price slump will adversely affect coal production, as well as the labour force.

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One of Australia’s leading coal producers, Glencore was forced to scale back its production by 15Mt in 2015. Similarly, BHP Billiton was forced to reduce its Queensland coal operating costs by 24% to $99 a tonne in 2014.

"The supply surplus has been identified as one of the main factors that has caused a 17% fall in prices."

The benchmark prices of coal this year are estimated to be lower by 9% at $62 per tonne as a result of continued oversupply and drop in Australian currency. Contract prices were low throughout 2015, with March and June quarter prices a tonne at $117 and $109.5 respectively.

The supply surplus has been identified as one of the main factors that has caused a 17% fall in prices on the previous year. The report also predicts that coal consumption will remain sluggish in 2020 at 135.2Mt, due to the increasing application of renewable resources in power generation.

Most of the coal produced in Australia is exported due to low demand from the domestic electricity market. The main export destinations are Japan, China, South Korea and India, together accounting for 81.3% of total Australian exports of 359.3Mt in 2014.

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Mining is the mainstay of Australian economy, employing 2.3% of the total workforce and representing 10.2% of its GDP (2014 estimate). The country is one of the top five nations globally in terms of its rich and extensive coal deposits, accounting for 8.6% of global proven coal reserves.

Timetric analysts forecast coal production in Australia to increase at a compound annual growth rate (CAGR) of 2.6% in 2020 to reach 518.1Mt.