Glencore's recent agreement to acquire Teck Resources' steelmaking coal division underscores the enduring profitability of inexpensive fossil fuels, specifically coal, despite the global shift towards renewable energy. While many Western companies are reluctant to explore new coal sources or construct new mines, investors emphasize coal's pivotal role in meeting energy demands during the transition towards cleaner energy alternatives. The persistent demand for coal, primarily driven by Asia, continues to propel prices upwards.

Particularly, coking coal is gaining attention as a preferred avenue for companies, being crucial in steel production—an essential component for large infrastructure and renewable projects. Notably, major players like BHP have opted to retain their high-quality coking coal assets, reflecting the strategic importance of this segment.

Glencore's acquisition of Teck's coking coal business is poised to establish a dominant coal force, estimated by analysts to generate an annual free cash flow ranging between $5 billion to $6 billion. Despite being a significant producer of thermal coal, with an annual output of approximately 110 million tonnes, Glencore intends to create a robust coking coal portfolio by integrating Teck's assets with its own.

While Glencore's CEO, Gary Nagle, reaffirms the company's commitment to phasing out its thermal coal assets gradually, he foresees a sustained demand for both thermal and coking coal in the foreseeable future. Mining investors align with this perspective, recognizing the role of cheap carbon energy in facilitating economically viable renewable energy.

Despite concerns over climate change prompting Western financial institutions to curtail support for the coal sector, global coal demand surged to a record high of 8.3 billion tonnes in 2022, with half originating from China, according to the International Energy Agency (IEA). Tight supply conditions and economic optimism have propelled coking coal prices beyond $300 per tonne, while thermal coal prices hover around $120 per tonne.

Acknowledging Asia's sustained reliance on coal, investors foresee continued profitability even after spinning off assets. Glencore's plan to spin off combined coking coal and thermal coal assets within two years of the deal's closure, followed by listing in New York, Toronto, and Johannesburg, aims to capitalize on the unique attributes of coking coal. Investment firm Letko Brosseau praises Teck's steelmaking business as a highly profitable asset, underlining the enduring significance of coking coal.