09.09.2021 by Guillaume Perret and Gareth Griffiths, Perret Associates
Hear more from Guillaume and Gareth at School of Coal Digital Training Course starting September 28, 2021
It appears that the news of the demise of coal has been greatly exaggerated with coal demand surging and out pacing supply. Despite the recent moves to drastically reduce the use of coal through the introduction of carbon taxes, investment bans on coal mine and power station investment the coal industry is enjoying another ironic renaissance.
Chinese steam coal usage has increased to record levels so far this year. Perret Associates forecast Chinese steam coal imports to reach 250mt in 2021, this would be a new all-time high above the previous record of 246mt in 2013. In fact, Perret Associates estimate China could import more in 2021, in what they call a “300mtpa” market, and total coal imports for July exceeded 30mt.
Coal usage for electricity generation has been increasing in most countries in the word as coal is regaining shares vs. gas in the power mix. This has been the case in recent months in North East Asia (Japan, South Korea, Taiwan). But also, in a more surprising development, in the EU27 zone.
Indeed, the magnitude of the rally in gas and LNG prices has been such, that highly efficient coal-fired power plants are now much more competitive than medium efficiency gas power plants. This is all the more remarkable as the cost of CO2 emission in the EU zone has reached a new all-time high at €60/t. In theory high CO2 prices were supposed to deter coal consumption. In current circumstances, the CO2 market is in fact pushing up the entire European electricity complex, and in particular power and gas. This is opening the door for stronger coal usage and has wrongfooted many utilities which are now buying large quantities on the spot market.
The current tightness of the international supply chain is almost unprecedented. The only parallel we can find is 2008, when spot steam coal prices jumped to $200/t + as the international coal supply and logistics were not ready to cope with the surge in Chinese demand.
The current stress in the supply chain and unofficial ban China on Australian imports has created a significant congestion worldwide and in particular at Chinese discharging ports. This makes the Legal and Force Majeure sessions at our course all the more relevant.
Coal flows have had to adjust with US coking coal shipments to China taking off and increasing shipments of Russian coal from its European ports into Asia despite high ocean freight rates. The role of freight rates is a key factor in the determination of coal flows.
The global coal industry in 2021 has demonstrated that it continues to be dynamic with many opportunities present for participants.
It will be a pleasure meeting you at the upcoming School of Coal Digital Training Course, where we will address in-depth all the current issues and provide a somewhat more positive outlook for the coal industry supported by hard data.
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