Coal supply, weaker seasonal demand should set prices By Investing.com

Investing.com — Global thermal coal prices have soared in recent months, driven by factors such as higher prices and increased demand for cooling during a heat wave.

However, analysts at UBS predict that this price increase is temporary. As coal supply increases and seasonal demand cools, prices may stabilize or even decline.

Coal prices in Europe and Asia rose at the end of August 2024. European thermal coal (API2) prices rose by around $20 per tonne to over $120 per tonne, while Asian maritime (Newcastle coal) prices rose by about $10 per ton to $145 per ton. ton.

This upward trend is largely due to a corresponding increase in natural gas prices. Both European gas prices TTF and Asian gas prices JKM rose, contributing to higher coal prices.

“Gas prices have been supported by expectations that Russian gas exports through Ukraine to Europe will end this year, as well as increased demand for cooling amid the Northern Hemisphere heatwave, particularly in Asia,” analysts said. at UBS.

“The latter also supported coal, which is cheaper than natural gas in Asia,” analysts said.

Despite global efforts to reduce coal consumption, the reality is that global coal use actually rose to a new record in 2023.

This growth is mainly driven by increased demand in China and India, which more than offset declines in the United States and Europe.

Coal continues to be a vital part of the energy landscape in many regions, particularly where it is abundant and more affordable compared to other fossil fuels.

Coal supply also saw notable growth in 2023, with around 80% of global coal production and consumption concentrated in the Asia-Pacific region. China, which accounts for 56% of global coal consumption, and India, with 13%, continued to drive global demand.

China’s coal production hit new seasonal highs, with output in July 2024 reaching 390 million metric tons, up from 378 million metric tons in July 2023 and 373 million metric tons in July 2022.

This increase in Chinese coal production is particularly significant as it reflects a strategic effort by domestic producers to offset slower production since the start of the year as strict safety restrictions were eased.

As China’s coal production continues to rise, the market is expected to become better supplied, which could ease some of the pressure on prices.

UBS analysts estimate that the current high thermal coal prices are likely to decline in the coming months. The increased demand for coal due to the summer heat is expected to decrease as the weather cools. This should help lower the price of thermal coal.

China’s increased coal production is expected to help balance the global coal market. As domestic supply increases, China can reduce its reliance on imported coal, potentially stabilizing or even lowering global coal prices.

In addition, China’s expanding use of renewable energy, particularly hydropower, could limit the growth in coal demand. As China continues to invest in renewable energy, the importance of coal in its energy mix may gradually decline.

UBS analysts believe the recent rise in Newcastle coal prices is temporary. They predict prices will fall to around $125 per metric ton in the next few months due to increased coal supply and lower seasonal demand.