Thermal, coking coal prices likely to drop further

Thermal coal prices have dropped to their lowest since January 2022 on concerns over sluggish demand and they will likely rule lower than the highs seen in mid-2022. 

Prices of coking coal,  used for making steel, are likely to drop too as they were driven by temporary supply disruptions last year. Higher production will also result in their decline. 

However, their prices will be higher than in past years, according to various global agencies’ outlooks.

‘Record high consumption’ 

The US Energy Information Administration said demand for coal, an important energy source, will likely grow in Asia though Europe may reduce its dependence by 2025.

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Recently, the International Energy Agency (IEA) said coal consumption is expected to hit a record high and remain stable until 2025 when the transition to clean fuel alternatives gathers pace. 

Currently, April Newcastle thermal coal contracts on InterContinental Exchange are quoted at $186.25 a tonne. On the Dalian Commodity Exchange, China, hard coking coal for delivery in April was quoted at 1,907 yuan ($275.15) a tonne on Tuesday and on Zhengzhou Commodity Exchange, April thermal coal contracts ended at 801.4 yuan ($115.57).

Price forecast

At Chinese warehouses, coking coal was quoted between $316 and $365 a tonne. Thermal coal prices peaked at $457.80 in September 2022, while coking coal had zoomed to over $600. 

The IEA said thermal coal demand remains high in other parts of Asia, such as India and Indonesia. The Australian Chief Economist Office forecast the Newcastle benchmark price of thermal coal to be around $200 in 2024.

Fitch Solutions Country Risk and Industry Research, a research unit of the Fitch Group, said it was raising its forecast for Australian coking coal prices from $300/tonne to $350. 

“...we expect price support to stem from the resumption of imports from China. Coking coal prices have declined dramatically from their 2022 highs and are currently hovering around $346/tonne,” it said.

Unsustainable highs

The Australian Chief Economist Office said the outlook for coal prices appears to be mixed for 2023. However, in the long term, the energy commodity’s rates will fall. It forecast coking coal prices to fall to $230 in 2024.

It said the high prices for coking coal were not sustainable for long as they were driven by temporary supply disruptions as opposed to market fundamentals.

SMM (Shanghai Metal Market) News said steel mills in China were maintaining high operating rates, resulting in a stable demand for coke. 

The situation has been complicated by recent environmental protection checks and risking coal costs that led to a cut in production by some plants. 

India to boost output

Fitch Solutions said, “We expect coking coal prices to remain elevated around current levels in 2023, but see limited increases above these levels.” 

Despite stronger steel production growth in India, the second largest importer, coking coal imports from Australia will decline as it is boosting domestic production, it said. 

In Japan, steel production growth will remain muted in 2023 affecting coal imports and capping coking coal price strength, preventing any rise to the highs of 2022.

On the supply side, the easing of the bad weather and strikes that led to a decline in export volumes in 2022 will support production growth in 2023, improving seaborne supply and limiting price growth, Fitch Solutions said. 

In the longer term, we expect coking coal prices to remain on a downward trend, as global blast furnace steel production slows on the back of the transition to a greener economy. Nevertheless, prices will remain high by historical standards over 2024-27, Fitch Solutions said.

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