Coal talks!

In March, coal prices hit their historic peaks, doubling in a matter of days as the Russia-Ukraine war began forcing western nations to consider slapping sanctions on Russian exports meant to hurt the economy’s major revenue source. Europe, for instance, receives nearly 70 percent of its thermal coal from Russia and in 2021, Russia exported a third of its coal exports to OECD Europe and Germany. Coal is not the only commodity that got affected and the war is not the only pressure point. Commodity markets have been frenzied by a host of interconnected issues sending them in a broad-based spiral.

Australian (Newcastle) and South African (Richards Bay) coal prices reached $440 per ton in March, surpassing their previous record peaks reached in October owing to post-covid demand surging across the world, particularly triggered by China. That price bump was not nearly as dramatic as this time but the war just built on that bump. Another reason was countries moving away from natural gas and toward coal as demand for electricity expanded.

Prices then began to ease and come down primarily because of covid rearing its ugly head again in China. The country vowing for zero-covid strategy went into shutters down mode again bringing demand significantly down. This led to coal prices easing. As covid lockdowns begin to lift however, China’s demand will rebound and coal prices will too as already evidenced. The shifting from natural gas is also causing pressures on coal demand which has to be met. According to the World Bank commodity markets outlook, coal prices are expected to be 80 percent higher in FY22 reaching their all-time-highs, following the same fate as natural gas. Prices are expected to moderate in FY23.

China has already started to expand its domestic production of coal and ramp up financing of coal projects to reduce reliance on imported coal and gas that are too expensive for comfort with also a marked switch toward comparatively cheaper fuels such as coal and oil as opposed to gas.