Amid a roaring demand for the commodity and a restricted supply, coal prices are surging at record highs and showing no signs of retreat. Demand for energy has catapulted, particularly originating from China as factories began churning goods for the world in the post-pandemic climate but where global supply shortages persisted. After spending the past few months in sweltering heat starving for more coal, the upcoming winters will be feeling the heat.
For a while, it seemed like the world would be breaking its coal habit as climate change proponents started to put pressure on coal and other fossil fuel usage. To reach the targets set under the Paris Agreement, coal output should reduce by 11 percent annually over the next decade and all fossil fuel consumption will have to cut down by 6 percent every year to tackle global warming (read more: “Coal rush”, July 9, 2021). Also, in a grand turn of events, China announced that it won’t be financing new coal plants overseas. But for now, coal is becoming more, not less precious.
There isn’t enough gas to meet power needs of the world that is recovering from a debilitating pandemic rather fast. Gas prices are soaring as a result. More countries are joining the queue to get their ration of coal that is not being produced in larger enough volume to meet all the needs, where China sits as the lynchpin to all demand and price rally. China’s own supply—being the biggest producer of coal too—is not enough.
In a statement in fact, the China Electricity Council said that it would expand coal procurement at any price to ensure heating and power generation during the winter. Australian coal’s spot prices have seen a hike of over 200 percent since Sep-20 and the same for South African coal has increased 169 percent in the past year alone. China’s announcement indicates not only that there would be more shortages—borne mostly by low income and developing countries like Pakistan—but prices will also continue to hike up.
Cement manufacturers in Pakistan that import a large quantity of the commodity to meet their fuel needs are in for a spin, and cement users, even more so. Coal constitutes a major chunk of the cost of production of cement and in turn also plays a pivotal role in companies’ margins. Upward spiralling coal prices will push prices of cement bags even higher than they have already increased (read: “Cement prices: Unaffordable Truths”, Aug 26, 2021). If coal is short in supply and manufacturers deplete their inventories, this will mean under-production amid a rising domestic demand for cement. Oh, boy! More of what that means for the cement and construction industry in a later column.