Thermal coal price hits decade high
The price of thermal coal has surged to a decade high, with producers cashing in on rampant demand, marking a swift turnaround for the fossil fuel after falling victim to the Covid-19 pandemic.
Top-quality Newcastle coal, used to fire power stations, hit $US123.75 a tonne, the highest since October 2011 and up 150 per cent in the last nine months alone, after slumping to a low of $US48 a tonne in September.
High demand from customers in Asia, where thermal coal remains a major source of electricity, have propelled the price of the commodity in recent weeks while supply has also tightened, with China entering its rainy season earlier than expected, creating hurdles transporting supplies to consumers.
The price bounce was sparked by “global post-Covid-19 demand pulse, squeezed higher by pending northern hemisphere summer and with some pinch points in supply from China and Indonesia,” Shaw and Partners mining analyst Peter O’Connor told The Australian.
The reversal of fortunes for thermal coal follows a big rally for several commodities as the world re-emerges from pandemic lockdowns and clamours for sufficient supplies to power industry. The main oil benchmark, Brent crude, is now trading at two-year highs and above pre-Covid levels at $US70 a barrel, while copper has traded at records on supply concerns.
Australian metallurgical coal, used for steelmaking, has also increased to $US161 a tonne, from just $US110 a tonne a month ago, while iron ore prices have surged back beyond $US200 a tonne on demand hopes.
Chinese policymakers released a draft plan to ease steel output cuts in the steelmaking‑hub of Tangshan, which accounts for 14 per cent of China’s crude steel production, according to CBA.
“We expect Chinese policy intervention will continue to drive price volatility in iron ore and other commodity markets,” CBA analyst Vivek Dhar said.
Thermal coal prices may step back from highs but would probably remain elevated for the next few months, Goldman Sachs said after holding talks with Australian producers.
“Producers noted thermal demand looks robust until at least August based on order book and forward curve, utility demand, and no signal of any new 6000kcal supply in the market, with Newcastle 6000kcal prices expected to stay above $US90 a tonne for most of 2021,” Goldman Sachs analyst Paul Young said.
“Demand for higher rank thermal coals (6000kcal +) from traditional markets such as Japan, Korea, Taiwan is strong and is being sold to Japan and Taiwan for over $US100 a tonne.”
Despite mounting pressure from investors to step away from new coal mines and coal-fired power stations, demand is expected to remain strong from Asian customers even as producers concede bringing on new sources of supply remains challenging in Australia.
“Several companies cited a robust long-run demand outlook with over 200 gigawatts of new coal power plants in a planning and execution phase globally. There is very little new high-energy 6000kcal near-term supply from Australia in the pipeline,” Mr Young said.
“The only major new supply is the 5500kcal 10 million-tonne-a-year Carmichael mine in the Galilee basin, which is expected to produce first coal in October 2021. Due to permitting, funding and insurance challenges – particularly around bank guarantees for mine rehab bonds – most producers believe building a new greenfield thermal mine in Australia is now very challenging in both Queensland and NSW.”
