Bloomberg data shows that the price of good quality thermal coal exported from the port of Newcastle, Australia on October 3 has set a new record high price of 203.2 USD/ton. It is forecasted that the world coal price will remain high during the last 3 months of this year.
This is the highest price since July 2008. The price of thermal coal exported from the Port of Newcastle is often considered the standard price for thermal coal in the Asian market.
The world coal price has continuously set new peaks recently mainly because China is massively buying coal globally to solve the serious electricity shortage. At least 20 provinces that account for more than two-thirds of China’s GDP have had to adopt some form of large-scale rotational power cuts.
China’s power shortage crisis stems from a sharp increase in the country’s manufacturing activity in the first half of this year, leading to an increase in electricity demand. This causes the demand to use coal for electricity production to increase, but both domestic and imported coal supply in China in the first 8 months of this year tended to decline, leading to a sharp increase in coal prices.
The price of input materials skyrocketed, but the selling price of electricity did not increase, causing many coal power plants in China to declare to suspend operations for “maintenance” but in fact to limit losses, causing electricity shortages to erupt. Coal power accounts for more than 60% of the total electricity supply in China.
The increase in world coal prices was also supported by the sharp increase in the price of liquefied natural gas (LNG) globally and the crisis of wind power decline in Europe. In particular, the sharp decrease in wind volume in the North Sea region has caused the supply of wind power in Europe to decrease, causing many countries in the region to increase supply from coal power, resulting in a sudden increase in demand for thermal coal. Thermal coal, which has long been restricted by Europe and emits large amounts of greenhouse gases, is emerging strongly after a prolonged period of price decline.
The record high price of LNG has also caused many power plants in Pakistan, India and Bangladesh to increase the use of coal instead of natural gas to produce electricity. However, coal supply in the global market is currently not keeping up with the sudden increase in demand. Transportation activities of major coal exporters in the world such as Indonesia, Australia, South Africa and Colombia are facing many difficulties due to floods, labor shortages and lack of transport ships.
At least one power plant in Germany was forced to shut down last week because it ran out of fuel. China is increasing purchases of different types of coal from many countries, including brown coal, which has low heat generation and high pollution, to ensure it has enough coal for electricity production. At the beginning of last week, Chinese Vice Premier Han Zheng ordered state-owned enterprises in the energy sector to ensure sufficient power supply in the coming winter months at all costs.
Goldman Sachs financial group (USA) forecasts that the price of thermal coal at Newcastle port can reach an average of 190 USD/ton in the last 3 months of this year. In the short term, the demand for coal for power generation in many countries is expected to continue to be high.
In China, operating capacity of coal-fired power plants in August increased 14% year-on-year in the last two years. Market research firm Wood Mackenzie (UK) forecasts that the country’s demand for coal power in 2022 will increase by 1% compared to this year.