The thermal coal price could remain above $US250 per tonne (t) until at least 2024, according to a recent report from Fitch Solutions.
Fitch forecasts the Newcastle thermal coal price to average $US320/t in 2022, which is a sizeable increase from its previous forecast of $US230/t.
“We expect coal demand to be stronger than we had previously anticipated and this is the reason for our higher price forecast,” Fitch said in the report.
“The main driver of high thermal coal prices since Russia’s invasion of Ukraine in February 2022 has been a rapid diversification of European energy demand away from Russian gas and coal, with a resulting increase in demand for gas and coal from other suppliers.
“As infrastructure bottlenecks have prevented Russia from fully diverting coal and gas exports to markets outside of Europe, the effect has been to reduce the amount of gas and coal available on the global market.”
Fitch predicts the Newcastle thermal coal price to average $US280/t in 2023 and $US250/t in 2024, before trailing off in 2025 ($US200/t) and 2026 ($US180/t).
This will result in a forecast average price of $US246/t from 2022–26. Fitch’s previous forecast for this five-year period was $US159/t.
“Coal demand growth will be far stronger in the coming years as a result of the Russia–Ukraine war and the related pivot by the EU (European Union) away from Russian energy supplies,” Fitch said.
“The EU will double-down on alternatives to coal power generation in the coming years, as illustrated by new EU policy, ‘RE-Power EU’, which will front-load funding from the European Green Deal to accelerate growth in renewable energy generation.
“Even though we have significantly increased our price forecasts, we continue to believe that the long-term trend in thermal coal prices will be lower.”
Fitch suggested that the rapid expansion of renewable and potentially nuclear power capacity in the EU will progressively dampen coal demand in coming years.
The 2021 COP26 summit in Glasgow indicated global coal-fired power generation would peak by 2030 before steadily declining across the ensuing decade.
An EU ban on Russian coal imports commenced on August 10, which the European Commission has said would quell imports of €8 billion ($11.54 billion) of Russian coal.
Coronado Global Resources group chief financial officer Gerhard Ziems said he expects the EU’s official coal embargo to further stimulate coal prices.
“The issue is a little bit bigger … when you look at the Russian situation, the ban will come into effect on August 10,” he told investors after Coronado released its half-year results last week.
“I think to a large extent, steelmakers in Europe have already self-imposed a ban on Russian coal … and therefore there will be more supply coming out of the market and it will have a positive impact on price in the near future – in the coming weeks.
“I suspect there’s a little bit of lag so we won’t see that price impact straight away on August 10 but that will stretch probably into September.”
According to Trading Economics, Newcastle coal futures were teetering above $US400/t at the time of writing (12:30pm AEST, August 15).