Thermal coal used to generate electricity at thermal power plants has surged in price over the past two months. Large consumers in China, India, South Korea and Japan have increased their purchases, Business Censor reports.
Since the beginning of November, Australian coal - the benchmark in the Asian market - has risen in price by 45% to $80 per ton, according to Argus. The price of its South African equivalent jumped 65% - to about $100 per ton, writes the Financial Times.
The rally will be a relief for major Australian producers such as Glencore as prices fell below $50 per ton in the second and third quarters amid a contraction in industrial activity due to the COVID-19 pandemic.
Traders say several factors are influencing right now. Production in Colombia is down 25 million ton this year due to low prices and supplies from new sources are lacking as banks and investors refuse to finance new mines.
At the same time, demand in Asia began to rise due to the region's economic recovery and the recent cooling. In China, where domestic production fails to meet demand, this situation has led to soaring prices, supply problems and the search for imported coal. However, this was complicated by an unofficial ban on the purchase of raw materials from Australia due to a diplomatic squabble.
As a result, Chinese buyers turned to producers in Indonesia, Russia and even South Africa, from where they have not imported coal since 2016. Traders estimate that about 1 million ton of South African coal is currently going to the PRC, and possibly even more.
“Steam coal prices have risen extremely rapidly in the past few weeks, mainly due to events in China,” CRU analysts said.
Despite the lack of purchases from China, Australian coal prices have also increased in recent weeks. Increased demand from the PRC has led to higher prices for coal from Indonesia, Russia, and South Africa, allowing Australian producers to sell raw materials in the less traditional Bangladesh, Turkey, and India markets.
Traders believe that prices may remain at current levels. Last week, the International Energy Agency said that the global economic recovery would lead to a 2.6% increase in coal demand in 2021.
“There is no indication that global coal consumption will decline significantly in the coming years, with increased demand in some Asian countries offsetting the decline in others,” the IEA said.
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