Thermal coal sets record as demand soars amid energy squeeze
Top-quality Newcastle coal has set a new all-time record of $US203 a tonne, a four fold increase in the last year, as demand from Asian buyers soars.
The price of premium Australian thermal coal has raced to an all-time record after a global energy crunch sparked a battle among buyers for fresh supplies of the fossil fuel.
High-grade Newcastle coal soared to $US203.20 ($279) a tonne, beating the previous high set in July 2008, and marking a fourfold price increase in the last year alone as big global buyers rush to grab deals for the power-generation fuel ahead of the Northern Hemisphere winter.
The rise, along with a surge in metallurgical coal and LNG prices to near record levels, will also boost the fortunes of Australian exporters, according to the Morrison government, helping ease a rapid decline in iron ore prices as steel demand falls in China, the world’s largest buyer of the metal.
Producers including Whitehaven Coal, Yancoal and New Hope Corporation have all rallied on the price bounce.
“These record prices confirm that, far from declining, global demand for Australian premium thermal coal is rising and forecasts indicate it will remain high for several years at least,” Resources Minister Keith Pitt told The Australian. “With metallurgical coal prices also at a record level and LNG fetching high prices, the outlook for Australian exporters is extremely good.”
While thermal coal – the most polluting fossil fuel – is under mounting pressure from financiers and climate-conscious investors, an escalating international energy shortage has caused panic among buyers who are desperate to grab supplies ahead of the looming northern winter.
China’s ban on Australian coal has worsened a rolling Chinese power crisis that has closed factories and left households in the dark, raising speculation that Beijing may already be looking to ease its moratorium, which has contributed to high prices.
“Global demand for steaming coal continues to outweigh supply,” shipping consultancy Braemar ACM said.
“In China, many factories have been forced to slow output with more recent developments indicating residential homes face similar power limitations.”
The price of thermal coal has now jumped more than 270 per cent since its 12-month low of $US54.70 last October, with supply currently failing to meet resurgent electricity generation demand caused by massive economic stimulus around the globe.
Coking coal, which has underpinned booming global steel production, has also hit record highs. Its last price of $US388.50 represents a rise of more than a 180 per cent on its yearly low, while oil is also at three-year highs, above $US80 a barrel.
A global natural gas shortage is also playing into the squeeze on energy supplies.
Spot LNG prices in Asia have jumped to $US34 per million British thermal units from under $US2 mbtu in June 2020 amid a rush to grab supplies, lifting the near-term fortunes of big Australian exporters including Woodside Petroleum and Santos.
“Importers in north Asia, particularly China, are keen not to repeat their experience from last winter, where colder than usual temperatures and a scarcity of LNG cargoes resulted in LNG spot prices spiking higher,” CBA analyst Vivek Dhar said.
European gas prices have also surged as buyers on the continent compete with Asian nations for cargoes of the fuel and the resulting tariff surge has made coal a more affordable alternative for many.
“The surge in demand for coal has stemmed from comparatively larger increases in natural gas prices,” Braemar noted.
The federal government’s commodity forecasters predict Australia’s resources and energy exports will defy the global spread of the Covid-19 Delta variant and falling iron ore prices to earn a record $349bn in the 2022 financial year, up 14 per cent on the year prior.
But the report warns the boom times won’t last, with export earnings set to fall just below $300bn the next year as mining operations disrupted by Covid-19 come back online, increasing supply, while government stimulus-led demand for commodities moderates and the iron ore price continues to fall.
Iron ore has crashed from $US200 a tonne in recent months to $US115 a tonne on Friday.
The Australian government’s forecaster predicts thermal and metallurgical coal exports will contribute $57bn to export earnings in the 2022 financial year, up 46 per cent.
Electricity-generating thermal coal is set to have an export value of $24bn in the 2022 financial year before edging off slightly to $19bn, with Chinese demand keeping global seaborne prices high to the benefit of Australian coal producers locked out of the Chinese market.
The report also says in the longer term, thermal coal prices could be sustained if net zero emissions commitments from countries and corporations result in the closure of mines ahead of coal-fired power stations.