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Coal’s Spark Flickers, but It Is Still Burning – WSJ

Coal prices have lost some steam, but pre-Ukraine war normal won’t return any time soon

An energy-starved world is expected to depend on coal to plug gaps in its fuel supply for several years to come. (Rick Bowmer/AP)

Megha Mandavia

EnergiesNet.com 12 14 2022

Thermal coal is losing some of its heat. But it would be a mistake to expect coal prices to fall back down to pre-Ukraine war levels anytime soon.

For better or worse, an energy-starved world will be depending heavily on coal to plug gaps in its fuel supply for several years to come.

Newcastle coal futures, the main power coal benchmark in Asia, were trading around $400 a metric ton on Friday, according to Refinitiv data. That is up from roughly $150 at the beginning of 2022, but significantly down from September highs of about $460.

Note: Contract month is December, 2022
Source: Refinitiv

The price drop in Europe has been much steeper: Prices of high-quality thermal coal destined for key northwest European ports are down by about a third since early September. One factor was a relatively warm fall in Europe, despite continuing worries over energy supply. Bad weather has, however, plagued miners Down Under and affected Australia’s ability to supply coal to the Asian export market—meaning Asian benchmarks such as Newcastle have remained relatively high.

Still, unless there is a new geopolitical shock or the weather turns extremely cold in the Northern Hemisphere, coal prices will probably continue their downward journey next year.

Australia will probably also be able to export more high-energy coal once its cyclone season ends in the first quarter. Canberra’s recent decision to cap wholesale prices for gas and coal burned in Australia might also divert some additional coal supply into the export market.

Natasha Tyrina, principal coal analyst at Wood Mackenzie, expects supplies from Colombia, South Africa and the U.S. will also increase as rail and weather-related disruptions fade into the rearview.

The adage that the cure for high prices is high prices—because they stimulate investment in supply—also seems to be playing out again in the coal market, much to the chagrin of climate activists. Banks delivered $26 billion in loans and bond financing to the coal industry in the first nine months of 2022, up 36% from the same period in 2021, according to a Bloomberg analysis in October.

Even so, it will probably be a while until energy consumers see high-calorie coal prices below $100 a metric ton again, given Europe’s energy crisis. China’s reopening and eventual property market resurgence may also increase coal demand sometime next year—although both will probably take longer than many market participants expect. Citi thinks it could be mid-2023 before Newcastle coal prices are averaging below $300.

Since Russia invaded Ukraine, the world has redeveloped a grudging respect for coal as a reliable source of energy. Coal prices may not touch the highs notched this year again barring another wrenching geopolitical event such as the invasion of Ukraine, but the dirty fuel’s ride off into the sunset is still some time away.

Write to Megha Mandavia at megha.mandavia@wsj.com

wsj.com 12 13 2022

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