Asian thermal coal hits new record on soaring European demand

Asian thermal coal prices hit a new record this month, driven by growing demand in Europe after the region banned imports of the fuel from Russia.

The tight coal market threatens to compound the energy crisis gripping Europe, which is preparing to ramp up its reliance on coal-fired power stations to get through the winter.

“There is very high demand at the moment for coal within Europe, with various governments in Europe looking to bring coal back online,” said Alex Thackrah, head of coal pricing at Argus Media, the pricing agency. “We have seen prices trending steadily higher for the last 12-18 months.”

The Australian benchmark for high-quality physical coal hit a record $438.94 a tonne on September 2, up from $433.24 the previous week, Argus added. The price increases have mostly affected high-quality thermal coal used in European power plants, according to analysts.

European countries are preparing to burn more coal this winter, and some have switched on mothballed coal plants, as the continent braces for energy shortages caused by the absence of Russian gas and coal.

Russia used to be the biggest supplier of thermal coal to Europe, which banned Russian coal imports in August.

“Even though Russian imports have stopped, Europe has been getting more coal from other countries,” said Dmitry Popov, analyst at CRU. “Prices have moved up in Europe, but not as much as the Australian price,” he added.

Owing to high gas prices, Europe is already burning more coal in power stations. In Germany, coal-fired power generation was up 31 per cent between January and August compared with the same period last year, according to data from Argus.

On top of strong demand for Asian coal, supplies have remained tight as heavy rains and flooding have restricted Australia’s ability to export the fuel. The country’s thermal coal exports in August were 16 per cent lower than a year ago, due to logistical challenges caused by the rain.

With limited new supply options for the type of high-quality thermal coal used in European power stations, European coal prices have set records this summer. Due to the ban on Russian coal, European buyers are looking for alternatives supplies from countries like South Africa, Colombia and Australia.

“That is a huge change, considering that Russia used to be Europe’s highest supplier,” said Thackrah. “Everything is really pointing to firm coal demand this winter in Europe.”

Weekly average prices in north-west Europe have doubled since the start of the year and are trading at $365.67 a tonne after hitting a record $407.47 in late July, according to price assessment firm McCloskey.