Breaking News: Global Thermal Coal Prices Soaring Due to Heatwave Demand - UBS Analysts Predict Temporary Surge
Global thermal coal prices have surged recently, driven by rising temperatures and increased cooling demand during a scorching heatwave. However, UBS analysts believe this price hike is temporary, as coal supply is set to increase and seasonal demand cools down.
In late August 2024, European and Asian coal prices saw a significant increase. European thermal coal prices (API2) rose by $20 per ton to over $120 per ton, while Asian seaborne prices (Newcastle coal) climbed by $10 per ton to $145 per ton. This upward trend is linked to the surge in natural gas prices, with both European TTF gas prices and Asian JKM gas prices rising.
The spike in gas prices is fueled by expectations of a halt in Russian gas exports to Europe and increased cooling demand across the Northern Hemisphere, particularly in Asia. The higher gas prices have also supported coal prices, as coal remains cheaper than natural gas in Asia.
Despite global efforts to reduce coal consumption, global coal use hit a record high in 2023. The demand surge is mainly driven by China and India, offsetting declines in the US and Europe. Coal continues to play a crucial role in the energy landscape, especially where it is abundant and cost-effective.
China and India are the main drivers of global coal demand, with Chinese coal production reaching new highs in July 2024. As China ramps up coal production, the market is expected to become better supplied, potentially easing price pressures.
UBS analysts predict that high thermal coal prices will likely decrease in the coming months as summer demand subsides. China's increasing coal production is expected to help balance the global market, potentially reducing reliance on imported coal and stabilizing prices.
Furthermore, China's investments in renewable energy, particularly hydropower, could limit coal demand growth and gradually decrease coal's importance in its energy mix. UBS analysts expect Newcastle coal prices to fall to around $125 per metric ton in the near future due to increased supply and declining seasonal demand.
In conclusion, while thermal coal prices are currently on the rise, this surge is expected to be temporary. Investors should monitor China's coal production and the global energy landscape for potential shifts that could impact coal prices in the future.
