Thermal coal prices are expected to remain strong in 2023, albeit down from the record highs of 2022. We take a closer look at the commodity’s outlook.
Fitch Solutions expects Newcastle thermal coal prices to average $US280 per tonne in 2023, down from the $US358 per tonne average of 2022, which resulted from a supply squeeze in the wake of Russia’s invasion of Ukraine.
“Our forecast for 2023 implies that prices are likely to get a boost from current levels in the coming months, as energy needs increase in summer and later on in the winter months, but remain significantly below the highs reached in 2022,” Fitch said in a recent report.
Fitch said it forecast global thermal coal consumption to grow by 0.76 per cent year-on-year (yoy) in 2023, compared with the 4.5 per cent yoy growth achieved in 2022.
At the same time, global thermal coal production is expected to grow by 2.14 per cent yoy in 2023, compared to 6.93 per cent yoy in 2022.
While coal has been an important stopgap for many countries and jurisdictions across the globe, Fitch said energy mixes were further diversifying with renewable energy to progressively make up a larger share of electricity generation.
Thermal coal is still expected to be a commodity of choice for China in 2023 after its importance was reiterated during China’s national congress in October 2022.
“It (thermal coal) was emphasised as a vital energy resource to insure against future volatility in renewable energy supply, and the country would be reliant on it until renewable power generation reaches sufficient scale,” Fitch said.
“Developments in China will have the largest impact on the outlook for global coal demand, since China’s power sector alone accounts for one third of global coal consumption according to the IEA.”
Fitch expects thermal coal prices to average $US250 per tonne in 2024, $US200 per tonne in 2025, $US180 per tonne in 2026 and $US150 per tonne in 2027.
“On the demand side, rapid expansion and acceleration of renewable energy in the EU will allow for reductions in coal use,” Fitch said. “In China, the commitment to renewable power and climate goals will also translate to reduced demand for coal upon installation of necessary power grids and infrastructure.
“Firms are likely to increasingly divest away from their coal resources in the longer term as energy trends shift away from coal, alongside increasing climate concerns. Governments, banks and mining companies continue to show a lack of appetite for coal, particularly thermal coal.”