Skyrocketing high prices of thermal coal likely to cut demand

The price of benchmark Australian thermal coal rose last week to trade near record highs, providing a short-term boost to producers but increasing the risks of longer-term pain.

The Newcastle index, as assessed by commodity price reporting agency Argus, climbed to $258.59 a tonne in the week, up from $ 246.34 per tonne the prior week and close to the all-time high of $261.11.

Indonesian coal prices have also recorded strong gains since the country’s government allowed most of its coal mines to resume exports after a ban in January, ostensibly to ensure sufficient domestic supplies.

The Argus index for lower-energy 4,200 kilocalorie per kilogram Indonesian coal jumped to $76.59 a tonne in the week, up 32% from its 2022 low of $58.15 per tonne, but still well short of the record $ 143.14 a tonne from October last year.

Australia, the world’s second-biggest shipper of thermal coal used for power generation behind Indonesia, is seeing strong demand for the polluting fuel from traditional customers in north Asia, such as Japan and South Korea.

It’s worth noting that the bulk of coal bought by these countries is sold under short- and medium-term contracts, and not at the weekly spot price.

This doesn’t mean Japanese and South Korean utilities aren’t paying high prices for their most of their supplies, but it is unlikely they are paying the current extremely high weekly index price.

However, between 2012 and the middle of last year, the price had never exceeded $120 a tonne and had spent much of those years between $50 and $90.

This was a period where even though Asia’s coal imports were experiencing strong growth, production was rising even faster as miners in Australia, Indonesia and Russia boosted output in the wake of the previous record high of just under $200 a tonne in 2008.

It was the boost to production that led to years of low prices, during which many miners struggled, before strong demand, especially from the world’s top importers China and India once again created coal shortages. Coal’s mantra for much of the past two decades in Asia has been that it is a fuel of choice because it’s cheap and reliable.

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