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Unrelenting coal demand poses challenge to climate goals

The dirtiest of fuels they’re racing to phase out is enjoying booming demand.
Image: Andrey Rudakov/Bloomberg

Coal prices across Asia are surging to records, underscoring a challenge for governments seeking a faster energy transition: the dirtiest of fuels they’re racing to phase out is enjoying booming demand.

Power plants are rushing to secure adequate electricity supplies as a hot summer adds to demand from the region’s post-pandemic industrial revival. On top of that, output in some key producer nations has been hurt, while high natural gas costs mean there’s no cheaper alternative for utilities to turn to.

Read: Eskom seeks R140bn for shift from coal

All that has sparked a coal rally in Asia, the centre of demand for the fossil fuel. The price of physical coal cargoes in Australia’s Newcastle and China’s Qinhuangdao ports have soared more than 50% this year to their highest ever. Futures are also up, with those in Australia jumping almost 50% and prices in China more than doubling.

“Coal prices just keep on punching higher,” said Sydney-based Peter O’Connor, an analyst at Shaw & Partners. “We’re close to the top in terms of pricing, but I don’t think we’re there yet.”

The rally is highlighting coal’s enduring role in the world’s energy mix, particularly in Asia’s large and growing economies, despite a broader push for more aggressive action to tackle climate change. Coal accounted for more than a third of global electricity generation in 2019, according to BloombergNEF. The top three consumers — China, India and the US — are all forecast to burn more this year.

“We can see fairly robust pricing toward year-end,” Sakkie Swanepoel, group manager of marketing at Exxaro Resources, the South Africa-based miner and coal producer, said on a Tuesday conference call. “We do not see prices just falling off the cliff.”

Here’s what’s driving the rally in key markets:

China

Much of the tightness in the market can be traced back to China, which produces and burns half the world’s supply. Power demand is surging as factories take on orders to supply rebounding economies, and domestic mine output has been slowed by safety inspections after a series of deadly accidents and extra scrutiny because of the Chinese Communist Party’s 100th anniversary celebrations.

Power plants are looking to imports to fill the gap, with June deliveries expected to top 30 million tons for the first time this year before rising again in July and August, according to analysts at Fengkuang Coal Logistics. The country still refuses to allow Australian purchases amid a geopolitical rift.

Even with government efforts to cool the market — such as releasing stockpiles and pressuring state-owned suppliers not to let bidding get out of hand — prices will hold at elevated levels this summer, especially as the spot market is facing a “pretty serious” shortage, said Huatai Futures Ltd. analyst Wang Haitao.

Australia

Producers have shrugged off the loss of a key export market after diplomatic tensions saw China halt Australian coal purchases from late last year. Cargoes of premium thermal coal have quickly found alternative buyers, while suppliers of mid-quality power station fuel and steel-making coal are poised to benefit as India and parts of Southeast Asia ease Covid-related restrictions, Australia’s government said in a report this week.

Benchmark prices for higher-quality physical coal at Australia’s Newcastle port have jumped 66% this year to a record of $136.38 a ton, according to China Coal Resource. Newcastle coal futures on Thursday rose to $131.45 a ton, the highest since March 2011.

Those gains haven’t translated into advances for some Australian producers. Yancoal Australia has declined 18% this year to Thursday’s close, while Coronado Global Resources has slumped 20%. “Coal is going up, and yet people don’t want to invest in coal,” O’Connor said. “There is a dislocation between coal prices and equities.” Companies including Whitehaven Coal Ltd. have also faced lengthy legal battles over expansion plans.

Japan

Some Japanese utilities have boosted spot coal purchases after the country’s Ministry of Energy, Trade and Industry ordered them to be prepared for summer demand after winter shortages sent power prices rocketing.

Tohoku Electric Power Co. had to agree to a 60% price bump for its annual coal supply through March 2022 from Glencore. Still, the sky-high coal prices are nowhere near the level they would need to be to cause utilities to switch to liquefied natural gas, where prices have risen by 500% in the past year.

Even in the middle of summer, buyers are already negotiating October-loading cargoes as they seek to secure supplies ahead of winter.

Indonesia

Heavy rains in Indonesia in the beginning of the year curtailed supply in the world’s biggest exporter of power plant coal. The government in April gave miners permission to produce an extra 75 million tons for export, on top of the 550 million tons it had set as a production quota, but so far supplies are behind pace.

“We don’t know yet if the export target can be achieved,” Indonesia Coal Mining Association Executive Director Hendra Sinadia said in an interview. “Even if prices are good it will also depend on demand and economic recovery in buyer countries amid this pandemic situation.”

India

India, the second-biggest coal user, burns the fuel for about 70% of its power needs and higher prices could ripple across the economy, accelerating inflation, according to Rupesh Sankhe, vice president at Elara Capital India in Mumbai.

Coal India, the top global producer of the fuel, is seeking to win sales as customers switch to domestic sources from higher-cost imports. It’s also debating whether to lift prices for long-term contracts to reflect the surge in global benchmark rates, Chairman Pramod Agrawal said last month.

The producer “has a great chance to win back customers that had switched to imports,” Sankhe said.

© 2021 Bloomberg

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Bad news for the global climate, this increased use of coal.
China is just an uncontrolled disaster, a one party totalitarian state which ignores human rights, does not care much about the environment, and has military, imperialistic tendencies.
We are stuffed.

Probably. There are still coal reserves equivalent to several hundred years of current consumption, production capacity is the constraint rather than potential availability. Investment in new production will be squeezed out in some parts of the world, but I’d be surprised if that’s the case in China or Russia which together have about 30% of global reserves and aren’t reliant on ‘western’ finance.

Coal will always be with us. Accept it.

So happy I bought Thungela at launch. Long live coal.

Energy sources offer strategic advantages to nations. Who would voluntarily give u a strategic advantage? Only the ANC!

The USA went to war in Iraq to protect and enforce their competitive advantage, the “exorbitant privilege” of the petro-dollar system that provides backing for their currency.

If the largest economy in the world is willing to invade some foreign territory(the so-called Axis of Evil remember?), and lose some of its own citizens in the process, to protect its strategic advantage, why would anybody else just role over to give up their’s?

because Greta told us we’re bad people if we don’t voluntarily return to the stone-age

Bwahahaha, the ultra conservative, completely uninformed “RSA Liberty” is still imprisoned in the dark, dirty coal age.
Just accept that renewables cost by now a fraction of the old “baseload” power from coal it nuclear.
Acc to Prof Mark Swilling in Aug 2019, coal fired electricity: R 1.20-140, nuclear 1.60-2.80, renewables 50-60 cts/kWh.
Feel FREE to read my comment below : https://www.moneyweb.co.za/news/economy/environmental-department-rejects-authorisation-of-karpowership-plan/#comment-883624.
D
Save the ‘energy’ in trying to demean your pet bug, Greta.

@Marcan, I would love it if the greenies would give serious consideration to Nuclear. It is a real way out of fossil fuel dependency. The problem is that they don’t want to take it serious. They want to rely solely on wind and solar and force people to reduce their electricity use when those sources aren’t reliable.

Strangely I actually think the alternate energy space will squeeze coal out over the next 10 years.

South Africa must take advantage of our strategic advantage on this front now while Europe wants to fund carbon reduction and RSA has some of the best wind, solar and transmission infrastructure.

The folly of man, thinking it can influence that which is governed by the sun.

Coal to coke to smelter iron ore, Try that process with wind power

Coal intrinsic in the production of solar panels

And a myriad of other essential uses

Research to capture byproduct gases and carbon particles should be the goal. Doubtful India, China or emerging economies are going to cringe with Greta Thunberg doing her yabbling

Climate change is already killing people directly through unprecedented heatwaves and other extreme weather events around the globe and yet governments continue to allow energy creation through the burning of coal, when the link to burning fossil fuels and global warming is now widely accepted scientific FACT. Humans are a funny lot.

not sure why people would be a fan of something that can be worth $120 in mid 2018, $50 in mid 2020 and $140 in mid 2021. That is uninvestable by any definition.

Part of the attraction of other energy (be it landfill gas or solar) is price certainty. A pension fund can drop off $250m preferred debt or equity in a wind farm venture and sleep well. 20y of sovereign guaranteed fixed pricing in low risk technology along with fixed escalations and a business model with 3% variable cost. The NPV range on that investment at coal’s potential prices make a mockery of the term investing.

Coal is gambling

Prices of Coal will keep rising as the COVID recovery will happen faster than the recovery of the supply chain and the stabilisation of the economics of the coal supply chain

COVID numbers are down ONLY due to lockdowns.If lockdowns are lifted = COVID will rise – and be more lethal.

Lifting lockdowns in US/EU and China has caused a QUANTUM leap in power demand.Unlike Hydro and Nuke power or even renewables (excluding Bio Mass),the coal supply chain will take a LONG Time,to return to stability.

The key problem is labour in mining and transportation,and and the labour in the R&M chain, of the coal operations.That labour is broken, scattered and busted.

Some will NOT return,and those that will,will ask for large salaries and insurance and breaks from work

That is Y most power stocks in all exchanges,have posted sharp rise in sales of power,to the grid – but a much higher rise in Costs.Only those Power plants, with OLD STOCKS of coal or Captive mines – are showing expansion in margins.

In poor nations,with industrial consumers gone and high tarriff consumers dead (like malls,theatres etc.) the buyers of power (the SEB) are completely busted.So the whole chain is BUSTED.

That is GOOD news for listed coal stocks !dindooohindoo

End of comments.

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