OpinionsCoal prices set to double under impact of Russia’s Ukraine War

Coal prices set to double under impact of Russia’s Ukraine War

Date:

K Raveendran

 

The impact of Russia's Ukraine war on the energy sector, particularly oil and gas, as well as commodities, has been too dramatic to be missed by anyone, including consumers in the remotest part of the . But what is causing new concern is how the war is pushing coal prices to unprecedented highs.

 

This has ominous portends for high coal-consuming countries such as , where hoarding and price increases have become rampant in the wake of the Ukrainian conflict.

 

Indian coal prices in the spot e-auctions are already at a record high, close to levels, attributed mainly to increased demand from power plants ahead of summer and suspected hoarding by traders in anticipation of a shortage due to the war. According to reports, spot auctions held by Coal India for coal from mines like Nigahi and Khadia got sold at Rs13,400 per tonne for mid-level grades. Even for reject-grade coal, the minimum price is about Rs 5,900 per tonne. But going by the guidance from energy analysts, prices could double in the foreseeable future in tandem with international prices. According to latest assessments, coal prices are set to see their highest in 200 years and on track to hit $500 (Rs 38,000).

 

In recent days, international coal prices in both Europe and the Pacific have experienced massive jumps. In a sign of just how tight and nervous the market is, a physical trade of Newcastle coal was reported last week at $400 per tonne. While total power coal demand has been on a declining trend for the last 10 years, coal-fired power generators in Europe have become increasingly dependent on Russian coal and Russia's market share has grown substantially over time.

 

According to Rystad Energy analysts, as gas prices continue to soar, European administrations may look to coal to pick up any shortfall in electricity generation as gas usage is scaled back. However, coal consumers will struggle to source additional coal from alternative producers because the supply/demand balance of the international seaborne thermal coal is extremely tight.

 

If sanctions on coal trade with Russia eventuate or there is a physical disruption to Russian rail/port transportation, then the sky's the limit for the prices. Producers and traders are reporting that buyers are already starting to pivot away from Russian coal both in the Atlantic and Pacific markets. And the threat of additional demand and lack of available supply is moving the market.

 

Russia is Europe's largest supplier of thermal coal. According to Eurostat, last year, Russia supplied EU member states with 36 million tonnes of thermal coal, representing 70 percent of total thermal coal imports. While volumes have stayed about the same, a decade ago, Russian coal imports were just half that at 35 percent.

 

Imported coal is generally of better quality and cheaper than any domestic production as all the best coal in Europe was mined out years ago. Germany for example, once a coal mining powerhouse, no longer produces any bituminous coal or anthracite. The last couple of ‘hard' or ‘black' coal mines, were closed in 2018 following years of financial subsidies, which were necessary because of high production costs associated with the deep seams and difficult underground mining conditions. Large-scale surface mining of low rank lignite coal is still carried out, but imported coal is vital to meet the needs of the many thermal power plants designed to burn higher calorific value fuel.

 

Poland is Europe's largest remaining coal producer and some 70 percent of total power generation is sourced from coal. Polish coal production rose slightly in 2021 with the country producing 52 million tonnes of lignite (brown coal), up 13 percent year-on-year, and 55 million tonnes of hard coal, up 1 percent. However, the long-term production trend is in decline and while Poland exports some thermal and coking coal to neighbouring EU countries, it has also increased imports of high energy thermal coal from Russia as it is generally cheaper than local production from deep underground mines.

 

One of the first places buyers will be calling will be suppliers from Colombia and South Africa. Colombian coal production, which is nearly all exported, recovered in 2021 following a large fall in 2020 due to Covid-19. Production rose to 59.6 million tonnes in 2021, up from 49.3 million tonnes the prior year but still well short of the almost 80 million tonnes it achieved previously.

 

Similarly, South African coal exports have been below planned levels for a number of years. Exports fell below 60 million tonnes last year, the lowest level in decades as the rail network was severely hampered by theft of copper cable. It is believed that annual exports of 70 to 75 million tonnes should be achievable if the security issues can be sorted out.

 

US coal production is currently seeing a resurgence after several years of decline, boosted by strong coal demand and robust prices, both domestically and overseas. US thermal coal producers were on track to end up exporting approximately 36 million tonnes last year, a hefty 30 percent increase from 2020. But only around 5 million tonnes were destined for Europe as Asian markets again proved to be a growing destination. (IPA Service)

 

Northlines
Northlines
The Northlines is an independent source on the Web for news, facts and figures relating to Jammu, Kashmir and Ladakh and its neighbourhood.

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