CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81.40% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Scan to Download iOS&Android APP

Coal futures: Prices soar as demand is stoked by global scramble for energy

By Payel Bera

Edited by Vanessa Kintu

11:00, 16 September 2022

Share this article
Tags

What You Need to Know

The week ahead update on major market events in your inbox every week. Subscribe
Burning coals
China is the largest producer and consumer of coal, followed by the US, India, Australia, Indonesia and Russia Photo: Lukas Gojda / Shutterstock

The global energy crisis has pushed coal prices to a record high, with European coal futures hovering around $329 per tonne. 

As of 14 September, the benchmark Newcastle coal index (NEWC) listed on the Intercontinental Exchange (ICE) was $438 per tonne, dropping slightly from the peak of $458. The coal spot price hit an all-time high at Australia’s Newcastle port, on 2 September at $436.71.

Coal supply remains tight from the top mining countries – China, Australia, Indonesia and Russia. A wave of floods has restricted Australia’s coal export capacity, while Indonesia is facing persistent rain issues.

China’s coal price has risen as a result of higher demand due to the lack of liquefied natural gas (LNG) and the country’s plan to increase domestic output to strengthen energy security. This will require the building of new coal-based power plants. 

Meanwhile, coal demand from Europe is surging as it moves energy sources away from Russian natural gas and coal. 

In this article, we will discuss the factors driving the coal market. We will look at long-term forecasts for coal futures prices, and analysts’ views and predictions.

What are coal futures?

The global energy crisis has pushed coal prices to a record high, with European coal futures hovering around $329 per tonne. As of 14 September, the benchmark Newcastle coal index (NEWC) listed on the Intercontinental Exchange (ICE) was $438 per tonne, dropping slightly from the peak of $458. The coal spot price hit an all-time high at Australia’s Newcastle port, on 2 September at $436.71. Coal supply remains tight from the top mining countries – China, Australia, Indonesia and Russia. A wave of floods has restricted Australia’s coal export capacity, while Indonesia is facing persistent rain issues. China’s coal price has risen as a result of higher demand due to the lack of liquefied natural gas (LNG) and the country’s plan to increase domestic output to strengthen energy security. This will require the building of new coal-based power plants. Meanwhile, coal demand from Europe is surging as it moves energy sources away from Russian natural gas and coal. In this article, we will discuss the factors driving the coal market. We will look at long-term forecasts for coal futures prices, and analysts’ views and predictions. What are coal futures? Coal futures are standardised, exchange-traded contracts. The contracts are for a buyer to take delivery of a specified quantity of coal from a seller at a predetermined price and delivery date. Coal futures are available for trading on the ICE and the New York Mercantile Exchange (NYMEX). The standard GC Newcastle contract listed on ICE is a lot size of 1,000 tonnes. NYMEX coal futures prices are quoted in dollars per tonne and traded in lot sizes of 1,550 tonnes. China is the largest producer and consumer of coal, followed by the US, India, Australia, Indonesia and Russia. In recent years, the US and European countries have significantly decreased coal usage, especially for electricity generation to meet emissions reduction norms. However, with geopolitical problems, supply chain crises and weather anomalies, demand for coal has surged. Coal futures historical performance [Please design: Coal futures 5-year price chart] Source: TradingEconomics In recent years, several European countries and the US have shut down or capped coal-based power plants. This has led to a decline in consumption and greater policy support for renewables, along with lower LNG price weighing over coal prices. Global Covid-19 restrictions in 2020 also saw energy demand fall. According to an International Energy Agency (IEA) report: “Global coal demand declined 4% in 2020, the biggest drop since World War II… particularly in the US and the EU, where coal use for power fell 20% and 21%, respectively.” The reopening of economies in 2021 ramped up industrial output, with coal consumption rebounding by about 6%. However, this led to a sharp rise in global energy-related carbon dioxide emissions, the largest annual increase on record. When Russia invaded Ukraine on 24 February, the Newcastle spot coal price jumped to $239 per tonne, from $161 in early January 2022. On 7 March, it soared to a record high of $435 as the EU agreed to begin phasing out imports of coal from Russia, the world’s third-largest coal producer. By the end of March and April, a spike in Covid-19 cases in China led to a fall in the coal price to $260. However, gradually due to supply side constraints there was a rebound during May and July, when coal traded above $400 on several occasions. Major drivers of a rise in the price of coal were floods in Australia, which hampered production and transport, and adverse weather conditions in Indonesia. Additionally, China planned to lift its unofficial ban on Australian coal imports as drought in the country reduced hydroelectric power production. At the time of writing on 14 September, Newcastle coal futures were trading at $438 per tonne. Influences on coal futures In its July report, the IEA said the world’s consumption of coal was set to rise to 10-year record highs in 2022. According to the agency: “Energy markets are in a period of extraordinary turbulence as the world contends with the global energy crisis.” The EU is expected to raise coal consumption by 7% in 2022 on top of last year’s 14% jump, driven by demand from the electricity sector to replace natural gas from Russia. Russia’s invasion of Ukraine has been a major cause behind the spike in the price of coal. To cut back on the reliance on Russian gas, EU countries are extending the life of coal plants that were going to be shut down, opening up previously closed units and raising caps on their operating hours. Russia has stopped natural gas flows through its Nord Stream pipeline to Germany, meaning more electricity will have to be generated from other fuels. Germany has restarted coal-fired power plants, while Italy, Austria and the Netherlands have announced similar plans. Additionally, as the EU has banned imports from Russia, coal coming from Indonesia and Australia has to be transported via the Suez Canal. The Evergreen block in the Suez Canal has already created a cascading impact on the supply chain and may lead to the price of gas could soar around 215 euros per megawatt-hour (MWh) in the winter as coal shipments from eastern ports will have to undertake long voyages. Analysts’ views and predictions According to the IEA report, with other coal-producing countries facing constraints in replacing Russian coal output, prices on coal futures markets could be tight. Market conditions are anticipated to last long into and beyond next year. The organisation that analyses and predicts the coal market’s future, expected coal consumption to rise by 7% in 2022. This could raise the global demand by 0.7% from 2021 to 8 billion tonnes this year. According to Fitch Solutions, Newcastle thermal coal could average around $320 in 2022. However, it may drop down to $280 in 2023, $250 in 2024 and $200 in 2025. TradingEconomics forecasts coal to trade at $461.84 per tonne by the end of this quarter and $551.77 by September 2023. KPMG forecasts Newcastle thermal coal (USD/ton Nominal) to average at $216.6 in 2022, $143.1 in 2023, $94.4 in 2024 and $82.2 in 2025. When considering coal investing, it is important to remember that analysts’ forecasts can be wrong and have been inaccurate in the past. Fundamental and technical study of the commodity is based on historical price movements, which do not guarantee future results. It is crucial that you do your own research, taking into account your attitude toward risk and expertise in the market. You should never trade money that you cannot afford to lose. FAQs

Coal futures are standardised, exchange-traded contracts. The contracts are for a buyer to take delivery of a specified quantity of coal from a seller at a predetermined price and delivery date. 

Coal futures are available for trading on the ICE and the New York Mercantile Exchange (NYMEX). The standard GC Newcastle contract listed on ICE is a lot size of 1,000 tonnes. NYMEX coal futures prices are quoted in dollars per tonne and traded in lot sizes of 1,550 tonnes.

China is the largest producer and consumer of coal, followed by the US, India, Australia, Indonesia and Russia. In recent years, the US and European countries have significantly decreased coal usage, especially for electricity generation to meet emissions reduction norms. However, with geopolitical problems, supply chain crises and weather anomalies, demand for coal has surged.

Coal futures historical performance

Coal futures 5-year price chart

In recent years, several European countries and the US have shut down or capped coal-based power plants. This has led to a decline in consumption and greater policy support for renewables, along with lower LNG price weighing over coal prices. Global Covid-19 restrictions in 2020 also saw energy demand fall.

According to an International Energy Agency (IEA) report

“Global coal demand declined 4% in 2020, the biggest drop since World War II… particularly in the US and the EU, where coal use for power fell 20% and 21%, respectively.”

The reopening of economies in 2021 ramped up industrial output, with coal consumption rebounding by about 6%. However, this led to a sharp rise in global energy-related carbon dioxide emissions, the largest annual increase on record. 

When Russia invaded Ukraine on 24 February,  the Newcastle spot coal price jumped to $239 per tonne, from $161 in early January 2022. On 7 March, it soared to a record high of $435 as the EU agreed to begin phasing out imports of coal from Russia, the world’s third-largest coal producer.

By the end of March and April, a spike in Covid-19 cases in China led to a fall in the coal price to $260. However, gradually due to supply side constraints there was a rebound during May and July, when coal traded above $400 on several occasions. 

Major drivers of a rise in the price of coal were floods in Australia, which hampered production and transport, and adverse weather conditions in Indonesia. Additionally, China planned to lift its unofficial ban on Australian coal imports as drought in the country reduced hydroelectric power production. 

BTC/USD

19,304.15 Price
+0.120% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 21:00 (UTC)
Spread 60.00

Oil - Crude

79.31 Price
-2.390% 1D Chg, %
Long position overnight fee 0.0226%
Short position overnight fee -0.0420%
Overnight fee time 21:00 (UTC)
Spread 0.03

US100

10,996.70 Price
-1.560% 1D Chg, %
Long position overnight fee -0.0140%
Short position overnight fee 0.0041%
Overnight fee time 21:00 (UTC)
Spread 1.5

XRP/USD

0.48 Price
-0.030% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 21:00 (UTC)
Spread 0.00600

At the time of writing on 14 September, Newcastle coal futures were trading at $438 per tonne. 

Influences on coal futures

In its July report, the IEA said the world’s consumption of coal was set to rise to 10-year record highs in 2022. According to the agency:

“Energy markets are in a period of extraordinary turbulence as the world contends with the global energy crisis.”

The EU is expected to raise coal consumption by 7% in 2022 on top of last year’s 14% jump, driven by demand from the electricity sector to replace natural gas from Russia. 

Russia’s invasion of Ukraine has been a major cause behind the spike in the price of coal. To cut back on the reliance on Russian gas, EU countries are extending the life of coal plants that were going to be shut down, opening up previously closed units and raising caps on their operating hours. 

Russia has stopped natural gas flows through its Nord Stream pipeline to Germany, meaning more electricity will have to be generated from other fuels. Germany has restarted coal-fired power plants, while Italy, Austria and the Netherlands have announced similar plans.

Additionally, as the EU has banned imports from Russia, coal coming from Indonesia and Australia has to be transported via the Suez Canal. 

The Evergreen block in the Suez Canal has already created a cascading impact on the supply chain and may lead to the price of gas could soar around 215 euros per megawatt-hour (MWh) in the winter as coal shipments from eastern ports will have to undertake long voyages. 

Analysts’ views and predictions

According to the IEA report, with other coal-producing countries facing constraints in replacing Russian coal output, prices on coal futures markets could be tight. Market conditions are anticipated to last long into and beyond next year. 

The organisation that analyses and predicts the coal market’s future, expected coal consumption to rise by 7% in 2022. This could raise the global demand by 0.7% from 2021 to 8 billion tonnes this year. 

According to Fitch Solutions, Newcastle thermal coal could average around $320 in 2022. However, it may drop down to $280 in 2023, $250 in 2024 and $200 in 2025. 

TradingEconomics forecasts coal to trade at $461.84 per tonne by the end of this quarter and $551.77 by September 2023. 

KPMG forecasts Newcastle thermal coal (USD/ton Nominal) to average at $216.6 in 2022, $143.1 in 2023, $94.4 in 2024 and $82.2 in 2025.

When considering coal investing, it is important to remember that analysts’ forecasts can be wrong and have been inaccurate in the past. Fundamental and technical study of the commodity is based on historical price movements, which do not guarantee future results. 

It is crucial that you do your own research, taking into account your attitude toward risk and expertise in the market. You should never trade money that you cannot afford to lose.

FAQs

What affects the price of coal?

Coal prices, like many other commodities, are affected by demand and supply. While demand for coal is driven by requirements for power generation and manufacturing activities, supply is impacted by weather changes, logistical disruptions and geopolitical tensions. 

Transition to clean energy is playing a crucial role in suppressing demand. Many countries are adopting wind and solar power pushing renewables into the economy, dampening the consumption of coal especially in electricity generation.

Are coal prices rising?

As of 14 September, coal prices are at record high due to unavailability of natural gas. Europe’s benchmark coal futures price is up roughly 90% from last year.  The API2 Rotterdam coal futures moved up to $329 per tonne.

How much coal is left in the world?

According to the US Geological Survey (USGS) and the US Energy Information Administration (EIA), as of 31 December 2021, there were about 1.16 trillion short tonnes of total world proved recoverable reserves of coal, which could last approximately 470 years. Recoverable reserves at producing mines could last about 25 years.

Further reading:

 

What You Need to Know

The week ahead update on major market events in your inbox every week. Subscribe
The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

Still looking for a broker you can trust?

Join the 450.000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading