Coal value renaissance: how lengthy can it final?

“If, a 12 months in the past, fifteen months in the past, you had stated to individuals thermal coal could possibly be $440, and coking coal could possibly be $600, they’d name the ambulance and advocate a pleasant physician,” Neil Bristow, managing director of H&W worldwide Consulting, stated Thursday at a latest Coal Affiliation of Canada convention.

“Who would imagine it?”

Whereas Russia’s invasion of Ukraine has roiled power markets and pushed up coal costs, the truth is that thermal coal costs had been surging months earlier than the invasion, as Europe was already in a self-induced power scarcity and resorting again to coal energy.

5 – 6 years in the past, thermal coal offered for about $60 to $80 per tonne, Bristow stated. Even earlier than Russia invaded Ukraine, thermal coal costs had soared to round $200 per tonne.

“The basics that precipitated these costs to extend in Q3 and This fall of 2021 are nonetheless there, and so they’ve solely been exacerbated by the sanctions on Russian coal,” stated Ernie Thrasher, CEO of Xcoal Power and Assets.

By no means in Bristow’s lifetime has he seen thermal coal (burned to provide energy) value greater than metallurgical coal, which is used to make metal, however it’s now.

Metallurgical coal (additionally referred to as coking or steelmaking coal) briefly touched $600 per tonne, Bristow stated, however has since settled all the way down to about $270 per tonne. That’s nonetheless a excessive value, however lower than thermal coal in the mean time, which is nicely above $300 per tonne.

The standard market forces of provide and demand that might usually see producers responding to excessive costs with elevated manufacturing merely isn’t occurring with coal.

Within the U.S., the coal mining trade is half the scale it was a few many years in the past, and easily can’t out of the blue reverse coarse. Australia’s coal manufacturing peaked in 2016 and it appears unlikely it will possibly reply to the sudden demand for thermal coal both. B.C. is a significant producer and exporter of metallurgical coal, however Canada exports little if any thermal coal.

Xcoal estimates the UK and Europe alone might want to discover 47 million tonnes of coal that used to return from Russia. It’s unlikely to return from the U.S.

“There’s simply not a lot the U.S. can do,” Thrasher stated. “We’ve principally dismembered our coal trade.”

Even when American coal mines might enhance manufacturing, there’s restricted coal terminal capability for exports, which is why coal produced in Montana and Wyoming is shipped via B.C. export terminals. And proper now, a kind of terminals — Westshore — has been paralyzed by a strike.

“There’s simply no elasticity within the provide chain that’s permitting individuals to reply to these costs, and the outdated adage of the most effective factor for top costs is excessive costs just isn’t holding true,” Thrasher stated.

In whole, Xcoal estimates the worldwide coal provide hole at 96 million tonnes.

“These excessive coal costs are occurring at a time when the Chinese language economic system is simply useless flat on its again,” Thrasher added. If China’s economic system had been to out of the blue get better and develop, that might put much more stress on each thermal and coking coal costs.

“Who can provide 96 million tonnes to fill that hole?” Thrasher puzzled. “It’s in all probability solely China and India. There’s simply not lots of different international locations on this planet the place there’s the flexibility to provide the coal that should fill this hole.”

As for steelmaking coal, which is B.C.’s second most precious export, a worldwide recession may cool demand and mood costs considerably. However Bristow predicts costs will stay excessive over the subsequent few years, as there merely not sufficient new metallurgical coal mines being constructed.

“My fashions don’t present sufficient coking coal to satisfy the demand on this planet after about 2027, 2028,” Bristow stated. “We desperately want new mines.”

“I’m going to be daring and say it is not going to keep $400 or $500 a tonne for very lengthy,” Thrasher stated of coking coal costs. “However I feel the times of seeing sub-125, 150 {dollars} per metric tonne of coking coal for any time frame are within the rear-view mirror, and it’s as a result of the coal merely just isn’t being produced.”

Thrasher stated he can envision stagflation ensuing from the scarcity of coal, if there’s a international recession.

“If we get into a significant international financial slowdown, it actually goes to place a damper on our merchandise,” Thrasher stated. “The query is, for those who return and have a look at these provide shortfalls, will a 5% international financial slowdown be sufficient to resolve the issue for those who’re 10% brief in power provide? You principally have a stagflation setting the place the worldwide economic system is crashing however you continue to want power and the power costs keep excessive.

“It would have an effect on thermal greater than coking coal. It could possibly be one thing we haven’t seen in 40 or 50 years.”

(This text first appeared in Enterprise in Vancouver)

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