Coal prices are soaring and global coal consumption is expected to return to record levels reached nearly 10 years ago as the global energy supply crisis continues.
While coal stock investors are having a field day thanks to high coal prices, restrictions on carbon emissions are taking a backseat as markets and governments scramble to stock up on energy supplies. amid bottlenecks caused by the Ukraine war, analysts say.
Worse yet, slowing investment in new coal-fired power facilities has further squeezed coal supply, Peter O’Connor, a senior analyst at Shaw and Partners, told CNBC’s “Asia Squawk Box” on Friday.
“Who would have thought that dirty old coal would have been the best performing equity in the last financial year. So far this financial year, it’s also the best performing sector,” O’Connor said.
“And looking at next year through the northern winter with gas prices in Europe and the availability of gas supply, countries are going back to coal.
“And supply [of coal] It’s tight. Why? Because nobody’s build capacity and markets will remain tight due to weather and Covid. So that market will stay high for longer, probably well into calendar year 2023.”
At the heart of the continued rise in demand for coal is gas shortages as the European Union moves to reduce the use of Russian gas, short of a gas ban, while Russia responds by cutting off supplies to the continent.
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The price of thermal coal used for power generation has risen about 170% since the end of last year, rising sharply after the Ukraine war began.
By contrast, the other main traded coal, coking coal as an ingredient for steelmaking, is trading lower. Driven by different dynamics, Moderate economic growth in China it is cooling steel production and, by extension, coking coal demand.
The International Energy Agency released a new report on Wednesday warning that global coal consumption will rise 0.7% in 2022 to match the record set in 2013, assuming the Chinese economy recovers as expected in the second half of the year. .
“The global total would equal the annual record set in 2013, with coal demand likely to rise further next year to a new all-time high,” the IEA Coal Market Update said.
“That sharp increase contributed significantly to the largest annual increase in history in global energy-related CO2 emissions in absolute terms, putting them at their highest level in history,” the IEA said.
Global coal consumption had already recovered by about 6% in 2021 as the global economy recovered from the initial shock of the Covid pandemic, the IEA said.
At the heart of the continued rise in demand for coal is gas shortages as the European Union moves to reduce the use of Russian gas, short of a gas ban, while Russia responds by cutting off supplies to the continent.
Therefore, coal consumption in the EU is expected to increase by 7% in 2022 on top of last year’s 14% jump, says the IEA.
“This is being driven by demand from the power sector, where coal is increasingly used to replace gas, which is in short supply and has seen huge price increases following Russia’s invasion of Ukraine,” he said.
“Several EU countries are extending the life of coal plants scheduled for closure, reopening shuttered plants or raising limits on their operating hours to reduce gas consumption.”
At the same time, Russian coal boycotts add further upward pressure on coal prices, the agency said.
“Europe’s worst fears materialized this week after Russia cut flows through the Nord Stream pipeline to 20% of capacity. Gas inventories may not reach levels tall enough to overwinterANZ Research commodity analysts Daniel Hynes and Soni Kumari said in a note on Friday.
“As Europe’s additional import capacity is limited, it is likely to compete aggressively for LNG shipments.”
The global gas market, including Asia-Pacific, is feeling the pain.
On Wednesday, Japan’s Nippon Steel Corporation signed a deal with mining and trading giant Glencore to supply thermal coal at $375 a tonne, the highest price a Japanese company has ever paid for the commodity, according to Bloomberg.
In general, rising energy costs continue to contribute to world inflationforcing central banks to continue with their monetary tightening.
the The Federal Reserve raised its benchmark interest rates by 75 basis points on Wednesday, the latest in a series of rate hikes aimed at reining in inflation.