The rally in the already-elevated thermal coal prices has gained momentum once again after the escalation in the Russia-Ukraine geopolitical tension which has led the US, EU, UK, and Japan to impose sanctions on Russia.
The country is a key supplier of coal to the world, enjoying a share of more than 15% of the seaborne metallurgical and thermal coal trade.
The major impact of this crisis is seen on South African coal as RB1 (6000 NAR) prices for March have risen by $14/t in a single day to $195/t, FOB, while CIF Amsterdam-Rotterdam-Antwerp (ARA) (6000 NAR) prices have spurted by $16/t d-o-d to $204/t.
Natural gas prices in Asia, Europe, and USA also rose, while Brent crude oil prices climbed toward $100/bbl for the first time since 2014.
South African coal prices escalate
The impact of the crisis is seen affecting Europe’s demand for coal to a large extent as it has raised its South African coal purchases since last year, following a sharp rise in natural gas prices.
Besides this, coal prices in the country were already on a boil amid record low stock at RBCT Port and logistic disruption surrounding Transnet Freight Rail.
With Russian coal and natural gas supply to Europe seen under pressure, the latter’s reliance on coal would remain higher, thereby delaying its climate action targets.
Notably, South African coal demand in China has also remained strong since 2020 amid its unofficial ban on Australian coal imports.
Indonesian and Australian prices
There has not been any significant rise in Indonesian and Australian coal prices against the backdrop of the Russia-Ukraine development as these countries supply mainly to Asian buyers.
However, a re-alignment in trade flows following the sanctions is likely to keep prices from these two geographies elevated.
With heavy rains and constrained domestic supply, Indonesian miners continue to clear backlogs of old contracts, while adverse-weather conditions disrupt Australian exports.
The Australian Bureau of Meteorology expects the LA Nina effect to linger and any additional rain may flood the already saturated mines and rail lines.
Impact on Russian coal supply
The potential impact of the crisis is likely to be in the form of a re-alignment of trade flows.
Over the last two years, Russia has been banking upon sales of its coal in the Asian markets with shipments to China taking the largest share of 30%, followed by South Korea and Japan (10% each).
And with Europe’s 15% export share out of the league for some time now, Russian coal miners are likely to re-direct their exports to China.
However, with the higher domestic coal output in China, and NDRC regulating coal prices within a reasonable range, Russian exporters may have to operate in a competitively priced market.
In terms of LNG, prices are likely to remain sharply higher as Germany would suspend certification of the Nord Stream 2 pipeline in response to Russia’s move into Ukraine.
The system which is a vital link to ease Europe’s gas supply shortage is complete and awaits regulatory approval to move more natural gas from Russia to Germany.
Short-term outlook
The ongoing crisis is likely to keep thermal coal prices higher as the trade flow shifts across geographies amid sanctions and constrained coal supply from major exporting countries.
Leave a Reply