Thermal coal prices in Asia are seeing a decline amid a decrease in liquified natural gas (LNG) prices and reducing demand in Europe. Natural gas prices surged early last year after Russia cut gas supplies to the rest of Europe and left several countries scrambling for other energy sources. With winter approaching and natural gas prices at all-time highs, plenty of European countries were forced to turn back to their coal-fired power plants to shore up power supplies.
The result was a spike in coal demand and prices even though most of the EU region had already pledged to move away from dirty fuels such as coal to renewable sources of energy, such as wind and solar. However, with European demand for coal weakening, thermal coal prices in Asia have dropped to their lowest level in two years.
Top coal exporters Indonesia and Australia saw significant losses as the prices dipped, but they may get a reprieve as LNG prices are projected to rise again. Commodity price reporting company Argus states that 4,200 kilocalories per kg Indonesian coal, which is mostly purchased by China and India, was trading at $52.20 per metric ton in the week preceding June 16, 2023.
This was a 57% reduction from the March 2022 high of $120.86, which was caused by significant supply chain fears right after Russia invaded Ukraine. In addition, 5,500 kcal/kg Australian coal also saw a major price reduction, going down by 70% from $280.20 per metric ton in March 2022 to $84.17 last week.
Price accessor globalCOAL reported that high-grade Australian thermal coal, which mostly goes to Taiwan, South Korea and Japan, was trading at just a quarter of its 2022 high. Compared to other coal exports, high-grade thermal coal from Australia has seen the most significant drop in price. This is mostly because Australia exports its high-grade thermal coal to territories such as Taiwan and Japan where it has to compete with liquified natural gas.
Reducing coal demand in Europe has also impacted coal prices by forcing suppliers such as South Africa to direct their exports to Asia and increasing the overall supply of coal in the region. Data from commodity analysts Kpler shows that South Africa only exported 535,000 metric tons of coal to Europe in June 2023 compared to 1.52 million metric tons in December 2022.
Conversely, Asia is poised to import almost 4 million metric tons of coal from South Africa in June 2023 compared to 2.28 million in December of last year. Kpler estimates that Asia will import a total of 76.49 million metric tons of coal this month.
Leading coal extraction enterprises such as Alliance Resource Partners L.P. (NASDAQ: ARLP) are likely to see their margins drop from the peaks that they registered when coal demand surged at the time Russia cut natural gas supplies to Europe.
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