“A year ago, fifteen months ago, if you had told people that thermal coal might be $440 and coking coal might be $600, they would call an ambulance and recommend a good doctor,” Neil Bristow, managing director of worldwide H&W Consulting, the latest Coal Association of Canada. said Thursday at the conference.
“Who would believe that?”
Russia’s invasion of Ukraine depressed energy markets and drove up coal prices, in fact thermal coal prices were rising months before the invasion, as Europe was already in self-inflicted energy shortages and resorted to coal power.
Five or six years ago, thermal coal sold for about $60 to $80 per ton, Bristow said. Even before Russia invaded Ukraine, thermal coal prices had risen to around $200 per ton.
“The fundamentals that drove those prices higher in Q3 and Q4 of 2021 are still there, and they’ve been exacerbated by restrictions on Russian coal,” said Ernie Thrasher, CEO of Xcoal Energy and Resources.
In Bristow’s lifetime he had never seen thermal coal (burned to produce electricity) worth more than the metallurgical coal used to make steel, but it was now.
Bristow said metallurgical coal (also known as coking or steelmaking coal) briefly touched $600 per ton, but then fell to around $270 per ton. That’s still a high price, but less than thermal coal at the moment, which is over $300 per ton.
The normal market forces of supply and demand usually see producers respond to higher prices with increased production, which is not happening with coal.
In the US, the coal mining industry is half the size it was a couple of decades ago and simply cannot afford to rebound. Australia’s coal production peaked in 2016 and seems unlikely to respond to sudden demand for thermal coal. BC is a major producer and exporter of metallurgical coal, but Canada exports almost no thermal coal.
ExCoal estimates that the UK and Europe alone need to find 47 million tonnes of coal coming from Russia. It is unlikely to come from the US
“There’s not much for the US to do,” Thrasher said. “We basically split up our coal industry.”
Although American coal mines can increase production, there is limited coal terminal capacity for export, which is why coal produced in Montana and Wyoming is shipped through BC export terminals. And right now, one of those terminals — Westshore — is paralyzed by a strike.
“There’s no elasticity in the supply chain that allows people to respond to these prices, and it’s not true that the best thing for higher prices is higher prices,” Thrasher said.
In total, Xcoal estimates the global coal supply gap at 96 million tonnes.
“These high coal prices are happening at a time when the Chinese economy is dead on its back,” Thrasher added. If China’s economy suddenly wants to recover and grow, it will put even more pressure on thermal and coking coal prices.
“Who can supply 96 million tons to fill that gap?” Thrasher wondered. “It’s probably only China and India. There aren’t enough other countries in the world capable of producing the coal needed to fill this gap.
For steelmaking coal, B.C.’s second most valuable export, the global recession could cool demand and depress prices somewhat. But Bristow predicts prices will remain high for the next few years because not enough new metallurgical coal mines are being built.
“My models don’t show enough coking coal to meet world demand after 2027, 2028,” Bristow said. “We need new mines.”
“I’m going to be bold and say it’s not going to stay at $400 or $500 a ton for long,” Thrasher said of coal prices. “But the days of seeing sub-125, 150 dollars per metric ton of coking coal for any length of time are in the rearview mirror and that’s because coal is simply not being produced.”
Thrasher said he could envision a tidal wave of coal shortages in the event of a global recession.
“If we were to get into a major global economic downturn, that would certainly put a damper on our products,” Thrasher said. “The question is, if you go back and look at those supply shortfalls, is a 5% global economic downturn enough to solve the problem if you have a 10% shortfall in energy supply? You basically have a stagnant environment where the global economy is collapsing but you still need energy and energy prices are high.
“It’s much more thermally affected than coking coal. It’s probably something we won’t see in 40 or 50 years.
(This article first appeared in Business in Vancouver)