04 Jun 2021
Coal is seeing a dramatic spike in demand just as several major miners are hit with production problems, sparking a surge in prices from China to Europe.
Prices for the dirtiest fossil fuel are soaring as hot weather in North Asia raises air conditioning needs, adding to already strong demand due to the industrial recovery from the pandemic. Mine safety issues in China, heavy rainfall in Indonesia and disruptions in Colombia are constraining output.
The price spike comes amid an existential crisis for coal, with climate policies making it increasingly difficult to invest in new projects. The squeeze might not change that, but it’s providing miners with a windfall while it lasts.
“We could have strong prices into the fourth quarter,” said James Stevenson, lead researcher for coal, metals and mining at IHS Markit Ltd. in Houston. “But this isn’t structurally strong demand. You’re probably best optimized enjoying the higher revenue than investing it in new production.”
As is often the case with coal, the story begins in China, which mines and burns half the world’s supply. As the first major economy to rebound from Covid-19, factories there have been running hot for a while, and that’s recently been given an extra boost as the recovery takes off elsewhere. However, a spate of deadly mining accidents has spurred Beijing to crack down on unsafe practices.
The resulting drop in output has been exacerbated by rising electricity consumption amid a hotter-than-normal summer, which followed extreme cold last winter. Higher demand meant several provinces had to curtail power supply to factories in December, and more than 20 cities in southern China have done the same in the past few weeks.
Coal prices have also been aided by problems at least partially of Beijing’s own making. The government refuses to accept coal from Australia, once its No. 2 supplier, amid a geopolitical spat. China’s benchmark thermal coal futures hit a record last month and are more than 50% higher than they were a year ago. Futures dropped Friday, falling as much as 5.9%.
Source : https://www.bloomberg.com/news/articles