Energy sector update
Sign up for myFT Daily Digest and be the first to learn about energy industry news.
Supply disruptions, China’s drought, and a rebound in power demand have stimulated the thermal coal market, making the world’s most unpopular commodity one of the best performing assets this year.
Since the beginning of the year, Australian high energy coal prices As a benchmark for the broader Asian market, prices have climbed 86% to more than US$150 per ton, the highest level since September 2008.
According to the latest weekly assessment by commodity price provider Argus, the transaction price of its South African equivalent is also at the highest level in more than 10 years, rising by 44% in 2021.
This put the coal benchmark ahead of the two best-performing asset classes this year: real estate rose 28% and financial stocks rose 25%.only Brent crude oil, An increase of 44%, with comparable income.
The resurgence of thermal coal burned in power stations to generate electricity highlights the difficulties faced by the government in trying to switch to cleaner forms of energy.
Even if renewable energy such as wind and solar Rapid growth, They are trying to keep up with the ever-increasing demand for electricity and electricity, leaving fossil fuels to fill the gap.
According to traders and analysts, several related factors are pushing up prices.
Dmitry Popov, a senior thermal coal analyst at consulting firm CRU, said: “Price increases are mainly driven by strong demand in China, and Chinese buyers are willing to buy materials at the highest prices.”
A drought in southern China earlier this year caused hydropower dams to collapse and increased demand for coal. It played an important role In the turbocharged operation of the commodity.
Due to strict safety regulations, as the economy continues to recover from the pandemic, China has also been working hard to increase domestic supply to meet the increasing demand for electricity.
At the same time, the output of Indonesia, China’s largest overseas coal supplier, has been affected by continuous rainfall, while railway and port restrictions have also affected the shipments of the other two key coal producing countries, Russia and South Africa.
China has Unable to buy Australian coal As a result of the ban, soaring natural gas prices have prompted some public utility companies in Japan and Europe to switch to coal, further tightening the market.
“I have never seen China under such pressure before,” said Tom Price, head of commodity strategy at Liberum. “Hydro breakdowns, local production struggles, and key import options do not exist.”
All of this happened as electricity demand picked up with the relaxation of the Covid-related blockade.
According to the International Energy Agency, after a decline of about 1% in 2020, global electricity demand will increase by nearly 5% and 4% in 2021 and 2022, respectively.
“Although renewable energy is expected to continue to grow rapidly, they can only meet about half of the net demand growth in 2021 and 2022,” the International Energy Agency said in its latest electricity market report.
Therefore, the Paris-based institution expects that coal-fired power generation will increase by nearly 5% this year, exceeding the level before the pandemic, and a further increase of 3% in 2022, when it may reach a record high.
But not everyone believes that high prices will continue.Fitch’s solution predicts that as Beijing releases coal from its strategic inventory and orders miners to Increase productionIn addition, China’s fossil power generation usually reaches its highest level in July and August, and then drops sharply.
“Therefore, we continue to expect that domestic thermal coal demand will slow down by early September,” Popov said.
Moving forward, a big question for thermal coal is whether environmental policies will cause demand to weaken faster than supply, because banks and insurance companies Refusal of funding new project.
“I expect the supply to fall faster than the demand,” said Liberum’s Price, who believes that China and India will continue to buy coal in the export market in the next decade. “This is a very tight market. It will not collapse in piles.”
Newsletter twice a week
Energy is an indispensable business in the world, and energy is its newsletter. Every Tuesday and Thursday, Energy Source will be sent directly to your inbox, bringing you important news, forward-looking analysis and insider intelligence. Register here.