Coal: Brrrr!

Coal is at the record-smashing level with coal futures hitting record peaks right now, more than doubling in value since the Russia-Ukraine war began in February as a result of sanctions slapped by indignant western nations on Russia. Within a matter of days, coal and other commodities shot up dramatically as crisis engulfed the region, building on an already precarious global energy supply situation in the post-covid scenario.

Shipments leaving the port of Newcastle in New South Wales have prices soared to US$420 per ton for the last recorded day (index compiled by Argus) widely surpassing the previous record peak of US$269 in Oct, only a few months ago. A similar trajectory can be seen for Richards Bay (originating from South Africa) where prices have soared through the roof. The last price rally was triggered in Sep-21 that went on for a few months as China’s demand for energy ballooned—as covid restrictions relaxed—and met with an equally restricted supply from coal suppliers. Prices skyrocketed; but given the current rally, that crisis was a speed bump by comparison.

With bans on Russia, countries will have to drift to other suppliers such as Australia and South Africa for their coal needs but if demand begins to soar in the midst of constricted supply, prices will keep going up.

Indonesia is another country that exports coal heavily to global markets and is—for the second time now over the past two months—considering banning exports so that Indonesian coal miners can feed domestic power demand. The first time the ban on exports was imposed was in January when Indonesian power companies warned of power shutdowns due to dwindling coal stocks. Resultantly, coal prices in the global market reacted with volatility hurtling forward for a few weeks till the ban was lifted. This second expected ban may come as early as end of this month which would bode (UN) well for a large number of coal importers, further putting pressure on coal supplies, and on prices, as a consequence.

Coal importers looking to renew their long-term contracts have the most difficult task to do—take the current price which is extraordinarily high or wait for the crisis to ease. But more than that, the restricted supply from Russia and potentially Indonesia would stretch other suppliers, particularly Australia, thin adding to the supply limitations in an already disrupted supply chain.