The price of export coal from Newscastle, Australia — most of which goes to Asia — has gained 56% over the last year. European prices have also risen, adding 64% since the start of the year, Oil Price reported.
Coal supply is also experiencing a growing tightness because of low investment in new production, partially the result of a drive toward lower use of the dirtiest fossil fuel and a boost in renewable electricity generation capacity.
However, the latest price trends suggest that this capacity still falls short of meeting the demand for electricity in most key markets.
Coal prices are likely to remain higher over the next few months due to the situation with fundamentals.
“Supply is shrinking and it’s probably shrinking faster than demand,” Tom Price, the head of commodities strategy at Liberum, said. “Everyone had turned their backs on these [thermal-coal mining] assets. Those companies that have clung on to them have made a small fortune on them in just the past few months.”
In China, the situation is quite critical. A shortage of coal last month prompted the introduction of power rationing in parts of the country. More rationing is likely as supply continues to be tight, not least because of a ban on Australian imports amid a political row between the two countries.
Meanwhile, other suppliers are reaping the benefits of the unofficial ban, free to raise prices for delivery of the fuel to the world’s largest consumer.