Coal prices to ‘stay higher for longer’: New Hope chairman Robert Millner
Strong demand from Asian buyers for Australia’s thermal coal will keep prices elevated.
Strong demand from Asian buyers for Australia‘s thermal coal will keep prices elevated over the medium term after the power-generation fuel hit an all-time record, New Hope chairman Robert Millner says.
High-grade Newcastle coal has rocketed to $US203.20 ($279) a tonne, eclipsing the previous market high set in July 2008, and a fourfold price increase over the last year alone as big buyers rush to grab deals ahead of the northern hemisphere winter.
Despite looming global talks aiming to curb greenhouse gas emissions, Mr Millner said it was a “wonderful era to be in coal mining”.
“When you go back to July last year it was down to $US52 a tonne and to see it now above $US200 is just incredible,” the chair of the Queensland coal producer said.
“I don’t think it’s going to stay at these levels but it will stay at fairly high prices for a while. There is no new supply coming on and people are still building coal-fired power stations, much to the disbelief of some people.
“The cash we are generating is incredible.”
A global energy crunch had underscored the need for both coal and gas to remain in the system to balance other sources including renewables, he said.
“We all agree that there needs to be some sort of renewables, but we still need baseload power. You can see what is happening in Europe at the moment with high gas prices and power prices. I think there’s got to be a happy medium somewhere,” Mr Millner said.
China’s ban on Australian coal supplies had limited its options and contributed to higher costs for its energy, the New Hope chairman said.
“They’ve actually done themselves a disservice because their cost of production is a lot higher than what they used to be able to buy it on the open market for.”
The comments come amid a scramble for supply ahead of the northern hemisphere winter as China competes with both its neighbours in Asia and European buyers for limited stocks. Energy prices have jumped around the world as big industrial economies ramp up as the impact of the coronavirus fades.
The situation is most acute in China, which is facing self-imposed problems caused by its ban on the import of Australian coal.
Other major suppliers – most notably Russia and Indonesia – have struggled to meet rising Chinese demand due to weather and infrastructure constraints.
China’s domestic coal prices have risen by more than 70 per cent since June, according to price-tracker Argus Media, with some recent sales reportedly topping more than 1700 yuan ($350) a tonne.
Amid rolling power cuts that have cut analyst economic growth expectations and with the winter months looming, Chinese authorities last week told its coal industry to lift output, and directed state-owned energy companies to secure supply “at all costs”, leading a scramble for supplies of both coal and LNG.
ANZ analysts on Monday said that the directive from Beijing was already being felt in LNG markets, where spare cargoes were already “well bid”.
“The move brings security of supply back into play, after months of talking down markets amid the growing impact of rising prices on consumers,” ANZ analysts said in a client note on Monday.
“This has already led to Japanese utilities selling excess LNG to Beijing at sky-high prices. At least six spot cargoes from companies including Jera, Tokyo Gas and Kyushu Electric have been delivered to Chinese ports in September.”
Spiralling gas prices in Europe have also pushed utilities to switch to coal generation, pushing European prices to record levels of about $US232 a tonne, according to price tracker globalCOAL, with Bloomberg reporting last week that one German utility had been forced to close one of its coal-fired plants due to lack of fuel.
But, despite China’s clear desperation, there has been no official sign that its current woes could lead to a relaxation of bans on Australian coal.
Growing industry chatter suggests the prices of offer mean some traders have been prepared to risk running the bans, buying coal cargoes in Australia and then directing the shipper to stop at another coal port on the way to China, to give a veneer of legitimacy to claims the coal was sourced from non-Australian mines.
But industry sources say major traders and producers are still unwilling to bet that China will relax its bans on Australian coal, particularly now the scramble for supply has forced up prices in Japan, South Korea and other major markets.
