Coal prices have rallied in the past week as strong demand for the power-station fuel, particularly from China, exceeded supply, with coal futures shooting up to multi-year highs of above $170 a tonne.
Coal futures at US ICE stood at around $172 per tonne today, 18 August – more than double January’s level of around $85 per tonne.
A heatwave in Zhejiang, Jiangsu and Guangdong, China’s biggest industrial provinces, and a rebound in industrial output have pushed demand higher despite the government’s pledge to cut carbon emissions, Tradingeconomics.com reported. Warmer weather also boosted demand in Japan, South Korea and the United States.
Coal prices likely to rally further
Coal prices are likely to continue their rally as China’s economy may start to pick up in the second half of this year, which will lead to higher imports, said Ramli Ahmad, president director of an Indonesian coal miner, Ombilin Energi, which operates a mine in South Sumatra.
“It boils down to China. China, China, China,” Ahmad told Capital.com in a phone interview.
“I think China’s economy is heating up. So, if they do not import much in the first half, they will import more in the second half. So this is causing the price to increase,” he added.
Spiking North Asia coal demand
China’s coal imports increased by 35% in June from a month earlier to the highest level in 2021, Reuters reported on 13 July. In the first six months this year, China imported a total of 139.56 million tonnes of coal, down 19.7% year-on-year, Reuters reported, citing data from China’s General Administration of Customs.
Spiking coal demand from China, Japan and South Korea has lifted Indonesia’s benchmark coal prices for August 2021 to $130.99 per tonne, the highest in more than a decade, the Indonesian energy ministry announced on 3 August.
On the physical market, the high prices have caused cargo diversion to China to meet the country’s demand for imported coal, Ramli Ahmad said.
Australia-China trade tensions
Ahmad’s company, which produces 100,000–120,000 tonnes of coal per month, has sold its output to China until September.
While demand spiked, supply from major producers has been limited. A trade spat with Australia has crimped imports, while supplies remain limited by a closed mine in Colombia and flooding in Indonesia and Australia.
A recent coal export ban imposed on dozens of Indonesian coal miners has also further squeezed supplies. Early this month, the country’s Ministry of Energy and Mineral Resources suspended exports from 34 miners for failing to meet their domestic sales obligation between January and July 2021, CNBC Indonesia reported.
China restarts coal mines
The ministry has so far revoked the ban for only two producers, according to local media reports.
Tradingeconomics.com reported that China authorised the restart of production for a year at 15 coal mines across northern provinces, such as Shanxi and Xinjiang, as inventories declined to near-historic lows since August, due to peak summer electricity demand and transportation bottlenecks exacerbated by last month’s severe floods and typhoon.
However, Ramli Ahmad said there are potential issues if China increases production, including mine safety.
“If there is a flood, there is an accident in the mines. So mine safety in China is still in question,” he said.