Strong points

CIF ARA price increased 155% in one year

Gas prices have also increased dramatically

Prices for coal transported by sea have been bullish over the past year, largely up from pandemic lows last spring as global energy demand picks up and economies strengthen.

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Prices signal a lack of supply as producers scramble to rehire workers on leave and reconnect supply chains.

However, there is uncertainty as to whether the sustained rally will lead to a crash or whether prices will stabilize as supply chains catch up.

“People have to go over price and be more concerned with availability,” said a US-based coal consultant. “This market is so inelastic. Energy demand in the third quarter has skyrocketed and they can’t find coal.”

The US consultant cited a recent conversation he overheard in the Asian market, regarding a third quarter equipment tender that closed without any bids.

“The producers are already involved, or they can smell blood in the water”, specifies the consultant. “And it’s really, really red.”

On May 28, 2020, S&P Global Platts’ spot valuation for thermal coal, based on 6,000 kcal / kg NAR, delivered to Northern Europe was valued at $ 37 / mt, or only 75 cents above. above its all-time low of $ 36.25 / mt in two weeks. earlier.

Exactly one year later, that price has more than doubled, being valued on May 28, 2021 at $ 94.50 / mt, an increase of 155.4%.

“Coal is telling the market that something is wrong,” the US consultant said. “The demand for energy is growing faster than the supply. It’s starting to smell 2007.”

Despite environmental pressures, coal remains the world’s leading fuel for power generation, in part because it is generally more competitive than gas. Even with the rise in coal prices, this is being confirmed, as increased demand for gas has supported rising coal prices, particularly in Asia and Europe.

The Platts JKM marker, for LNG delivered to Japan and South Korea, was valued on May 28, 2021 at 10.313 / MMBtu, up from $ 1.938 / MMBtu exactly one year ago, an increase of 432.1%.

The Platts valuation for the day-ahead TTF, a benchmark for European gas, was valued on May 28, 2021 at $ 8.888 / MMBtu, up from $ 1.085 / MMBtu at the same date last year, an increase of more by 700%.

U.S. coal exports looming

The backdrop is a surge in economic activity. S&P Global Platts Analytics has estimated that global GDP will grow 5.6% in 2021, following a 3.2% decline in 2020.

“Infrastructure spending and the resurgence of the manufacturing sector are raising the industrial side of the landscape, while energy is expected to remain supported by accelerating demand growth over the summer and tightening supply-side balances. request, “Platts Analytics wrote in the May 17 edition of its World Economic Outlook.

High petroleum coke prices are also creating increased demand for thermal coal, in combination with supply constraints in places like Colombia and even the United States, where producers would struggle to attract workers.

Nonetheless, US thermal coal exports in the first quarter totaled 9.4 million tonnes, compared to 7.5 million tonnes in the same period last year. According to a European source, “a significant increase in American exports is looming”.

Export prices from the United States have also increased, but to a lesser extent. On May 28, Platts valued FOB Baltimore, base 6,900 kcal / kg NAR, at $ 75 / mt, up from $ 56.50 / mt a year ago, and FOB New Orleans, base 6,000 kcal / kg NAR. , at $ 53.05 / mt, compared to $ 43.15. / mt last year.

Regarding the possibility of whether the rally in coal prices will continue or if a crash is imminent, a second US-based coal consultant said he remembered 2007, but adding that the current scenario could be different.

“In 2005, China first became a net importer of coal, so the world coal market changed and there was a sharp increase in prices,” said the second consultant. “This time it’s more like a short-term spike in demand due to a supply struggling to catch up.”