Coal prices have been falling over the past two years—recording their lowest in nearly five years after reaching a peak in Jul-18. Coal plants are being retired across the world in favour of renewables, several countries have cut down production and vow to further move away from fossil fuels in order to preserve the ailing environment. Demand has been further aggravated by Covid-related miseries as countries have closed borders, shut down industrial units and gone into lockdowns causing economic activity to hit pause.
In fact, the U.S Energy Information Administration (EIA) has cut down its estimate for coal consumption across the world during 2020—with US consumption to go down 28 percent. The EIA believes lockdowns pushed electricity demand down by nearly 15 percent for major European economies such as Italy, France and Spain. Moody’s believes coal may not recover even by the year end as alternative fuels, natural gas and green energy take front seat.
In the US, EIA projects that the country would produce more energy from renewables than from coal and the latter’s share in electricity generation would fall down from 50 percent to 10 percent over the next five years. There are calls for shutting down thermal plants to replace them with wind and gas. The US is not alone. Several countries are providing renewable and green subsidies and, in some cases, disincentivizing coal investment to discourage coal usage.
On the other end, wind and solar is becoming cheaper which will make the shift away from fossil fuels substantially easier. Analysts now believe with the pandemic changing ground realities to a great extent, coal might never recover to its peaks witnessed during 2013.
Free-falling coal prices are a direct outcome for dying demand (and supply glut in markets)—between Jul-18 and the latest number recorded for Aug-19, Australian thermal coal prices have fallen 58 percent while South African coal has slumped 46 percent during the period. Both origins are trailing the troughs experienced in 2016.
Australian coal is trailing $50 per ton now. Fitch Solutions has revised its thermal coal price forecast for 2020 to $55-65 per ton which despite being a downward revision is higher than the current price—the average being $58 per ton. A recovery is not on the cards.
In any case, with China keeping coal imports in check and other countries passing green bills to subsidize renewable energy solutions, natural demand would suffer long after Covid-19 is over but whether coal is burnt out is a question for the ages. Analysts remain circumspect. For the remaining few months left in 2020 though, they are sure prices will remain depressed and demand recovery far from sight.
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