Asia’s relentless demand for coal challenges climate targets, Asia News & Top Stories

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SINGAPORE (BLOOMBERG) – Coal prices in Asia hit record highs, underscoring a challenge for governments seeking a faster energy transition: The dirtiest fuel they are trying to phase out is experiencing booming demand boom.

Power plants are rushing to ensure an adequate supply of electricity as a hot summer adds to the demand for the region’s post-pandemic industrial recovery. On top of that, production in some key producing countries has been affected, while the high costs of natural gas mean there is no cheaper alternative for utilities to turn to.

All of this sparked a coal rally in Asia, the center of demand for fossil fuel. The price of physical cargoes of coal at Australian ports of Newcastle and Qinhuangdao in China has climbed more than 50% this year to its highest level on record. Futures are also on the rise, with those in Australia jumping nearly 50% and prices in China more than doubling.

“Coal prices continue to rise,” said Peter O’Connor, Sydney-based analyst at Shaw & Partners Ltd. “We’re near the top in terms of price, but I don’t think we’re there yet.”

The rally highlights the sustainable role of coal in the global energy mix, especially in large growing Asian economies, despite wider pressure for more aggressive action to tackle climate change.

Coal accounted for more than a third of global electricity production in 2019, according to BloombergNEF. The top three consumers – China, India and the United States – are all expected to burn more this year.

“We can see some pretty robust prices towards the end of the year,” said Sakkie Swanepoel, group marketing manager at Exxaro Resources, the South Africa-based coal miner and producer, in a conference call on Tuesday, June 29. “We don’t see the prices falling off the cliff.”

Here’s what is driving the rally in key markets:

China

Much of the narrowness of the market can be attributed to China, which produces and burns half of the world’s supply. Demand for electricity is rising as factories take orders to supply recovering economies, and national mine production has been slowed by safety inspections after a series of fatal accidents and scrutiny due to the 100th anniversary celebrations. anniversary of the Chinese Communist Party.

Power plants are looking to imports to fill the gap, with June deliveries expected to exceed 30 million tonnes for the first time this year before rising again in July and August, analysts at Fengkuang Coal Logistics said. The country still refuses to allow Australian purchases amid a geopolitical rift.

Even with the government’s efforts to cool the market – like releasing inventory and pressuring public suppliers not to let auctions get out of hand – prices will hold high levels this summer, all the more so. that the spot market is facing a “pretty serious” shortage, said Wang Haitao, analyst at Huatai Futures.

Australia

Australian producers have ignored the loss of a key export market after diplomatic tensions prompted China to halt purchases of Australian coal late last year. Shipments of premium thermal coal quickly found alternative buyers, while suppliers of power plant fuel and mid-grade steel coal are expected to benefit while India and parts of Southeast Asia relax Covid-related restrictions, the Australian government said in a report this week.

Benchmark prices for premium physical coal at the Australian port of Newcastle have jumped 66% this year to a record US $ 136.38 per tonne, according to China Coal Resource. On Thursday July 1, Newcastle coal futures reached US $ 131.45 per tonne, the highest since March 2011.

These gains did not translate into higher stock prices for some Australian producers. Yancoal Australia is down 18% this year through Thursday’s close, while Coronado Global Resources is down 20%.

“Coal is increasing, and yet people don’t want to invest in coal,” O’Connor said. “There is a dislocation between coal prices and stocks.”

Companies, including Whitehaven Coal, have also faced lengthy legal battles over expansion plans.

Japan

Some Japanese utilities have boosted spot coal purchases after the country’s Ministry of Energy, Trade and Industry ordered them to prepare for summer demand after winter shortages sent prices soaring electricity.

Tohoku Electric Power had to accept a 60% price hike for its annual coal supply through March 2022 from Glencore Plc. Still, skyrocketing coal prices are nowhere near the level they would need to reach to get utilities to switch to liquefied natural gas, where prices have risen 500% in the past year.

Even in midsummer, buyers are already negotiating cargo-to-load in October as they seek to secure their supplies ahead of winter.

Indonesia

Heavy rains in Indonesia earlier this year reduced supplies to the world’s largest exporter of power plant coal. In April, the government allowed miners to produce an additional 75 million tonnes for export, on top of the 550 million tonnes it had set as a production quota, but so far supplies are behind schedule.

“We don’t yet know if the export target can be met,” Indonesian Coal Mining Association executive director Hendra Sinadia said in an interview.

“Even if the prices are good, it will also depend on demand and the economic recovery in buying countries amid this pandemic situation.”

India

India, the second largest user of coal, uses fuel for around 70% of its electricity needs and higher prices could spill over into the economy, accelerating inflation, according to Rupesh Sankhe, vice president of ‘Elara Capital India Pvt in Mumbai.

Coal India, the world’s largest producer of fuel, seeks to gain sales as customers turn to domestic sources from more expensive imports. It is also debating whether to raise long-term contract prices to reflect soaring global benchmarks, President Pramod Agrawal said last month.

The producer “has a good chance of winning back customers who have turned to imports,” Sankhe said.

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