Investing.com — Global thermal coal prices have skyrocketed in recent months, driven by factors including rising prices and increased demand for cooling during a scorching heat wave.
However, analysts at UBS predict that this price increase is temporary. As coal supply increases and seasonal demand cools, prices are likely to stabilize or even decline.
European and Asian coal prices rose at the end of August 2024. European thermal coal prices (API2) have risen by around $20 per tonne to over $120 per tonne, while Asian seaborne prices (Newcastle coal) have risen by around $10 per tonne to $145 per tonne. tons.
This upward trend is largely due to a corresponding increase in natural gas prices. Both European TTF gas prices and Asian JKM gas prices have risen sharply, contributing to higher coal prices.
“Gas prices have been boosted by expectations that Russian gas exports via Ukraine to Europe will end this year, and by increased demand for cooling amid the heatwave in the Northern Hemisphere, especially in Asia,” UBS analysts said.
“The latter has also supported coal, which is cheaper than natural gas in Asia,” the analysts said.
Despite global efforts to reduce coal consumption, the reality is that global coal consumption will reach a new record high by 2023.
This increase is mainly driven by increased demand in China and India, which has more than offset declines in the United States and Europe.
Coal remains an essential part of the energy landscape in many regions, especially where coal is plentiful and more affordable compared to other fossil fuels.
Coal supply has also increased noticeably in 2023, with approximately 80% of global coal production and consumption concentrated in the Asia-Pacific region. China, which accounts for 56% of global coal consumption, and India, with 13%, have continued to drive global demand.
China’s coal production has reached new seasonal highs, with production reaching 390 million tons in July 2024, up from 378 million tons in July 2023 and 373 million tons in July 2022.
This increase in Chinese coal production is particularly significant as it reflects a strategic effort by domestic producers to make up for lower production earlier this year following the easing of strict safety restrictions.
As Chinese coal production continues to rise, the market is expected to become better supplied, which could alleviate some pressure on prices.
UBS analysts predict that current high thermal coal prices are likely to fall in the coming months. The increased demand for coal due to the summer heat is expected to decrease as the weather cools. This should help reduce the price of thermal coal.
China’s increasing coal production is expected to help balance the global coal market. As domestic supply grows, China can reduce its dependence on imported coal, potentially stabilizing or even lowering global coal prices.
In addition, China’s increasing use of renewable energy, especially hydropower, could limit growth in coal demand. As China continues to invest in renewable energy, the importance of coal in its energy mix may gradually decline.
UBS analysts believe the recent rise in coal prices in Newcastle is temporary. They predict prices will fall to around $125 per tonne in the coming months due to increased coal supply and declining seasonal demand.
