Thermal coal has become one of the most profitable assets since 2021, due to supply disruptions, drought in China, and a resumption in electricity demand.
According to the Financial Times, since the beginning of the year, the price of high-energy Australian coal has risen by 80%—to almost $146 per ton (the highest level in over the past ten years), and of South African coal—by 44%, and that is also the highest level in the last decade.
The rise in coal prices is ahead of the real estate cost (increased by 28% since the beginning of the year) and financial shares (25%). At the same time, Brent crude oil increased by 44%, as did South African coal.
Why are coal prices rising?
According to Dmytro Popov, Senior Thermal Coal Analyst at CRU consulting company, the price increase is due to strong demand from China, and Chinese buyers were ready to buy coal at the highest prices. At the same time, the drought in southern China that had occurred in early 2021 destroyed hydroelectric dams and increased demand for coal, and that played a significant role in the growth of demand for the product. The country’s attempts to increase domestic supply to meet demand also had an impact.
At the same time, the publication notes that Indonesia, which is the largest supplier of coal to China, could not mine coal due to precipitation, and Russia and South Africa, which are the two most important coal producers, faced rail and port restrictions on coal supplies.
The demand for electricity is also worth mentioning. For instance, according to the International Energy Agency, it will increase to 5% in 2021 and up to 4% in the next year. At the same time, renewable energy sources will be able to meet only half of the demand.