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Coal prices have jumped to their highest in more than two years, as surging gas prices triggered by the war in Iran send utilities in Europe and north-east Asia in search of additional coal supplies to keep the lights on.
European prices for the thermal coal used in power stations have jumped 26 per cent since the eve of the war, reaching $133 per tonne, with similar gains across the Australian and Asian markets, according to pricing data from Argus.
“Without a doubt, global coal markets have not seen price pressure like this since the Russian invasion of Ukraine,” said Tom Price, analyst at Panmure Liberum. “It is the biggest shock to the coal market in several years.”
After Russia’s full-scale invasion of Ukraine in 2022, European countries burned more coal as they worked to wean themselves off Russian gas, and simultaneously rushed to secure coal that was not from Russia. Coal prices hit record highs of more than $400 a tonne following the invasion.
While the war in Iran has little direct impact on the movement of coal around the world — very little of it travels through the Strait of Hormuz — it has sent oil and gas prices surging and raised concerns around supplies of liquefied natural gas.
European gas prices have risen 53 per cent since the outbreak of hostilities on Saturday.
This has prompted power companies that normally rely on gas to turn to more polluting coal-fired plants as an alternative, particularly in places such as Japan, South Korea, Taiwan and the EU.
Italy’s environment and energy security minister Gilberto Pichetto Fratin said in a TV interview on Wednesday that the country would consider restarting some dormant coal power plants if the energy crisis sparked by the war got worse.
This week Bangladesh has also said it will turn to coal to alleviate the impact of high gas prices and disruptions to LNG supply.
A prolonged conflict in the Middle East could send coal prices to nearly double their current levels, to around $250 a tonne, particularly if the energy crisis caused mothballed coal power plants to be restarted, said Alex Thackrah, senior manager for coal at Argus.
“If we have a prolonged period of LNG supply disruption, that will translate into a materially higher coal price,” Thackrah said.
The coal market was already tightening last month, before the outbreak of war in Iran, due to a new production quota system in Indonesia, the world’s biggest exporter of thermal coal.
While Indonesia has not yet finalised its production quota for this year, it is expected to be significantly lower than last year’s, reducing the amount available for export.
George Cheveley, portfolio manager at Ninety One, said that coal was benefiting from renewed concerns over the security of energy supply as well as from supply cuts made during a prolonged period of low prices in recent years.
“Clearly higher energy prices will have some effect on coal demand in some markets,” he said. “It all depends how long this lasts.”
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