Research firm BMI has revised downward its Newcastle thermal coal price forecast for the year to $180/t, from $220/t previously, owing to global demand for coal having weakened.
After averaging $192/t in the year-to-date, prices are hovering at about $150/t as of August 24, with BMI expecting coal to trade within a range of $150/t and $200/t for the remaining months of the year.
The new forecast remains markedly higher than the price levels before Russia’s invasion of Ukraine in February 2022 and by historical standards; however, it is nonetheless a significant departure from the average thermal coal price of $358/t in 2022.
BMI explains that buoyant global supply and a stronger dollar have influenced demand for coal. Thermal coal production in China and India, in particular, has risen significantly.
The firm expects prices to continue easing to an average of $170/t in 2024 and $160/t in 2025, to reach $130/t by 2027, as the global economy progresses on its shift away from energy derived from fossil fuels.
BMI forecasts global thermal coal consumption will grow by 0.69% year-on-year this year, compared with a growth rate of 4.7% having been recorded in 2022. In turn, thermal coal production will likely grow by 3.2% year-on-year this year, compared with a growth rate of 7.2% year-on-year in 2022.
Together, these figures will lead to a wider global surplus of thermal coal, from 293-million tonnes in 2022 to 521-million tonnes this year.
BMI says Europe is likely to remain the main driver behind weakening coal demand, since the region actively sought to diversify away from Russian energy resources. While this led to a short-term rise in coal demand, European countries have managed to significantly increase their gas storage levels to 90% of capacity.
China, on the other hand, will remain committed to coal following severe droughts and adverse climate conditions having tested its renewable power generation capabilities in 2021 and 2022.
Coal was reiterated as a critical commodity during Mainland China’s National congress in 2022. China’s power sector alone accounts for one-third of global coal consumption.
Neither China, nor India, have made explicit commitments to stop new coal projects locally and domestic financing remains forthcoming.
BMI finds there are 96 operational, expansionary and new mines being tracked in Asia, although these will likely be the last wave.
Asia will, nonetheless, remain highly dependent on coal for power generation in the coming decade, given energy security concerns and the number of young coal power plants that have come online in the last ten years.