For the last decade Australia has been the leading exporter of both steam and coking coal. In the ten-year period 1989 - 1998 steam coal exports increased by 93 per cent and metallurgical coal exports increased by 50 per cent. However, profitability of the steam coal sector has been disappointing. The coking coal sector, especially the hard coking coal segment, has fared better but its profitability was more because of its ability to maintain relatively high prices rather than its inherent productivity. Until quite recently the Australian coking coal sector was widely expected to be able to maintain this comfortable state without undue effort for the three major partners'; the companies, the State Government and the unions. But coking coal could now be heading down the path followed by steam coal that ends with long-term over-supply and, despite steady improvements in productivity, poor profitability. Steam coal entered the new' era of long-term over-supply some years ago. Over-supply was due to the rapid increase in production in Indonesia, often from new mines and Australia. Australia's production rise was underlain by the apparent belief that the best way to lower costs was to increase production. In the first couple of years costs didn't fall much but the additional tonnage was sold at lower and lower prices into the spot market. By mid-1998 the difference between the contract price set with Japanese utilities and spot sales was often in excess of $US12 per tonne. Japanese contract prices and tonnages have since fallen significantly. Steam coal has moved from being a product to being a commodity. Any profits are due more to the low Australian dollar rather than inherent mine productivity. Seaborne coking coal trade has been dominated by Australia, Canada and the USA, with the USA becoming less competitive. Unfortunately, when the Queensland capacity expansion was well down the pipeline, the Asian financial crisis occurred and the Japanese economy entered what appears to be a long-term recession. Contract prices fell 18 per cent, tonnages decreased and some mines have been reclassified as supplying lower priced coking coal. The paper analyses past and expected future trends in labour and mine productivity, rail freight and FOB export port cash and total costs of the Australian steam coal and coking coal sectors and discusses the market outlook for Australia. The future economic viability of the industry is analysed and discussed in the light of the rapidly changing global environment.