Resurgent Coal Market Hits New High as Chinese, Indian Economies Gather Steam
September 5, 2021 - Soaring demand for electricity in China and India has put a rocket under the coal market with prices for the fossil fuel hitting a record high despite efforts to de-carbonise the global economy.
Australian miners have been fetching up to $US180 a tonne for their benchmark thermal coal deliveries this week, setting a new high of more than $240/t in Australian dollar terms.
The record comes barely six months since prices plumbed lows of just $US50/t as miners dealt with the twin blows of a COVID-induced economic downturn and China's unofficial decision to ban Australian imports.
Viktor Tanevski, the principle coal research analyst at consultancy Wood Mackenzie, said there had been a surge in power use — which was closely tied to coal consumption — as major Asian economies reopened.
Asia ignites price 'fireworks'
Mr Tanevski said the market had been further propelled by problems among major coal producers such as Indonesia, starving supply and driving prices higher.
"Consequently, we've had fireworks in the thermal coal pricing indices," Mr Tanevski said.
The resurgent coal market stands in stark contrast to last year when Beijing added coal to its list of Australian products hit with trade strikes.
While the decision was a blow to producers initially, Mr Tanevski said they had since been able to find other markets as global trade "rebalanced".
Chief among them was India, which Mr Tanevski said was on track to take up to 20 million tonnes of Australian coal in 2021.
Established markets such as Japan, South Korea, and Taiwan were also buying significant amounts of coal from Australia.
And in a sign of the times, Mr Tanevski said there had been several shipments of Australian coal to Indonesia, despite the fact it was one of the world's biggest suppliers in its own right.
China blacklist backfires
He said all roads ultimately led to China, which Wood Mackenzie predicted would help underpin elevated prices throughout the rest of the year.
"That market [China] has fallen to zero," he said.
"They've had to procure coal increasingly from Indonesia and Russia and that has opened up opportunities for Australian coal to penetrate an increased market share in other markets, particularly North Asia."
Despite the surge in prices, Mr Tanevski noted that the volumes of the seaborne thermal coal trade had not returned to their highs of 2019.
The Institute for Energy Economics and Financial Analysis (IEEFA), an anti-fossil fuel lobby, said the smaller size of the trade was of greater significance than the prices in the market.
Simon Nicholas from IEEFA said the longer-term prospects for thermal coal were poor, regardless of whether prices spiked in the short to medium term.
Coal outlook 'remains poor'
Mr Nicholas said the coal market was inherently "volatile" and this would remain the case even as demand fell away because supply could reduce at a faster rate.
"If anything, this is bad for the outlook of thermal coal in the long term because higher prices now make coal even more expensive relative to cheap renewable energy," Mr Nicholas said.
With China and India both adding massive amounts of coal-fired power capacity to their grids in the past 20 years, Mr Nicholas acknowledged that what happened in Asia would have a large bearing on global efforts reach net zero emissions in coming decades.
But he argued that China's autocratic government meant it would act "fast" once it decided to move away from fossil fuels, while India was rapidly approaching "peak coal".
Aussie coal 'best in world'
Queensland Resources Council chief executive Ian Macfarlane said the booming price reflected the popularity of Australian coal in international markets.
Mr Macfarlane said Australian coal was typically less polluting than coal from other countries and this meant it would continue to find buyers even as demand eventually subsided.
As a result, the former federal coalition minister said miners would continue to invest in new and expanded coal mines.
"When you look at the coal market in Asia, which contains half the world's population … they're still building coal-fired power stations," Mr Macfarlane said.
"And that gives investors confidence."
Following a report by the International Energy Agency (IEA) this year which called for an end to new fossil fuel projects, Mr Macfarlane said there would inevitably be a "sunset" for the thermal coal industry.
However, he said Australia should not abandon foreign coal market so long as there was demand, arguing it would lead to poorer outcomes overall.
"If the world decides to shut down coal then obviously we won't be mining coal," he said.
"So if they decide to balance their electricity portfolios with coal as well as gas and renewables then Australia should be taking the opportunity to supply those markets with the best coal in the world."