Coal might be turning into the surprise story of 2026. The rally in the miners certainly has the potential to go on for possibly longer than the market originally assumed.
Major producer Yancoal (ASX:YAL) reported its September quarter (Q3 2026) results this week. It was the largest coal producer on the ASX until the arrival of Glencore (ASX:GLC) this month. Yancoal expects to produce approximately 36.5–40.5 million tonnes of attributable saleable coal in the 2026 calendar year.
Yancoal has a spread of coal mines on the east coast of Australia, in New South Wales and Queensland.
The quarterly release was positive. The NSW Government approved the extension of operations in the Hunter Valley, where Yancoal operates, for 19 years — despite the state being committed to approving no new coal mines.
Thermal coal prices were up 7% for the quarter, and metallurgical coal up 5% for the quarter. That helped increase Yancoal’s cash balance by $340 million in the quarter before it allocated capital toward its dividend payment and a recent acquisition.
Yancoal produces both energy and steelmaking coal. Combined, they averaged $170 per tonne. Costs are approximately $98 per tonne.
Coal prices are generally trending higher:
Source: Yancoal
2026 has proved favourable for thermal coal because elevated LNG prices have made coal power more attractive for Asian customers.
There are also supply issues out of major producer Indonesia. Chinese domestic production is down too.
On the demand side, India’s power companies are drawing down inventories and will likely need to restock in future months. Inventories were down 40% as of early September.
Chinese coal demand could stay elevated for longer
China relies on coal for 50% of its power generation. Not only that, but China’s power consumption is increasing. It’s expected to rise 5–6% in 2026. Thermal coal use will be at record high this year.
China is also making a major investment in its power grid over the next 5 years as part of its ‘six networks’ policy that could keep coal demand elevated for at least a year or two.
Beijing is using this infrastructure investment to help offset the deflationary trend of the weak consumer economy.
Not only is Beijing investing in the power grid, but the AI economy as well, which is sure to boost power consumption.
All this gives YAL a favourable outlook in the short to medium term. It currently trades on a price-to-earnings ratio of 10 and a yield just under 6%.
It’s hard to see the market expanding the multiple it pays for YAL. Coal, as an industry ‘play’, will never be a ‘growth’ market again.
However, should the rally in coal prices continue, the market could bid up YAL to price in the increasing cash flow.
Yancoal also recently completed the acquisition of 80% of the Kestrel coal mine. This will add to its total production in 2027 — and at higher prices because it produces coking coal.
Funds willing to invest in coal
Fund managers and the broader investment community also seem more willing to hold coal exposure than several years ago. They are more inclined to take the matter pragmatically, according to Glencore CEO Gary Nagle.
This may become more important in 2027 if the pressure on Australian consumer and industrial stocks continues. Coal may be one of the few sectors on the ASX with strong tailwinds.
Strong coal prices are also good for the NSW and QLD governments, who receive royalties from the industry. This can help address the level of state debt in Australia, which is an area of increasing concern.
Should coal prices increase from here , the YAL dividend for shareholders may surprise on the upside.
Write to Callum Newman at Mining.com.au
Main image: Unsplash
