Global thermal coal prices are likely to decline in 2024 on prospects of warm weather cutting heating needs and excess supply, analysts say.

Newcastle coal futures are near a three-year low at $118 a tonne, the lowest since May 2021. Oversupply in the Chinese market is blamed for the current plunge. The prices are down 55 per cent year-on-year. 

“We are revising down our Newcastle thermal coal price forecast for 2024 from an annual average of $170/tonne (6,000kcal/kg) to $150,” said research agency BMI, a unit of Fitch Solutions.  

Weak demand

“The Newcastle coal price is expected to decline from just under $173 a tonne over 2023 to around $115 a tonne by 2025. This is still well above the 2019 average of $76 a tonne,” said the Australian Office of the Chief Economist (AOCE)

Global demand for coal remains weak alongside buoyant market supply, BMI said, adding that its forecast for 2024 marks a significant departure from the annual average of $358/tonne reached in 2022. However, prices remain markedly higher than price levels before the Covid-19 pandemic.

AOCE said most factors point to a decline in prices over the outlook period. “The end of the Northern Hemisphere winter will place downward pressure on thermal coal demand in early 2024,” it said.

Chinese uncertainty

The International Energy Agency (IEA) has forecast China’s coal consumption to fall in 2024 and plateau through 2026, with hydropower output set to recover while electricity generation from solar PV and wind increases significantly. 

“However, the pace of economic growth in China and its coal use in the coming years is subject to uncertainty,” it said.

BMI said: “... we expect prices to improve from current levels over the coming months in 2024. Since H2 2023, buoyant coal supply and demand weakness have resulted in increases in coal inventories globally and sharp declines in prices since their 2022 highs.”

La Nina disruptions

“A range of structural price pressures have manifested in thermal coal markets over the last few years. Supply is likely to remain constrained by low capital availability, labour shortages, loss of Russian output following the invasion of Ukraine, and rising global freight costs,” AOCE  said. 

The Australian Chief Economist Office said supply has not yet fully recovered from La Niña disruptions, and there is capacity to bring additional supply into markets over coming months. 

“Global gas supplies are expected to increase in 2025 and 2026 with the US and Qatar bringing extra supply online. Lower gas/LNG prices should reduce pressure on thermal coal markets,” it said.

IEA said the Chinese economy is undergoing major structural changes as it “reaches the end of infrastructure-led, energy-intensive growth. “But the speed at which it changes gears and continues to expand clean energy capacity will have a significant influence on the outlook for coal,” it said. 

India to rely on coal power

BMI said supply wise, production in key coal-consuming markets in Asia, including India and Mainland China, has risen significantly.

The global energy body said India, Indonesia and other emerging and developing economies are expected to rely on coal to power strong economic growth, despite commitments to accelerate the deployment of renewables and other low-emissions technologies. 

“We forecast global thermal coal consumption to decline by 0.2 per cent year-on-year in 2024, after displaying stagnant growth in 2023. On the other hand, we expect global thermal coal production to grow by 3.0% year-on-year in 2024, similar to 3.1% y-o-y in 2024,” the research agency said, adding this would lead to a wider global surplus of thermal coal in 2024.

Upside risks

AOCE said thermal coal price risks remain somewhat balanced.  Demand faces downside risks, with a weak Chinese recovery, a mild Northern Hemisphere winter, and increased stockpiles potentially constraining coal use. 

“However, shocks to supply — such as the El Niño weather pattern impacting Indonesian exports — could again lead to price increases,” it said.