Thermal coal prices will likely head south further for the remainder of the year in view of weak global demand and rising supplies. “A modest decline in prices for all coal grades is expected... Risks remain finely balanced, with a potential global economic slowdown presenting a downside possibility for thermal coal prices,” the Australian Office of Chief Economist (AOCE) said. 

The International Energy Agency said in its market update that global coal consumption, which rose to a record high in 2022, will stay near that record level this year as strong growth in Asia for both power generation and industrial applications outpaces declines in the US and Europe.

Price forecast lowered

Research agency BMI, a unit of Fitch Solutions, said it has lowered its Newcastle thermal coal price forecast for 2023 to an average of $180/tonne from $220 previously as global demand for coal weakens alongside buoyant market supply and US dollar strength.

After averaging $192 in the year-to-date, prices are now hovering around $150 as of August 24. “Our forecast implies that we expect prices to trade within a range of $150-200 in the remaining months of 2023, marking a significant departure from the annual average of $358/tonne reached in 2022,” the research agency said. 

Newcastle thermal coal October futures on InterContinental Exchange ended the week at $160.6 a tonne. 

AOCE said high calorific thermal coal prices have fallen substantially from a peak in late 2022 of over $400 a tonne, as European Union stockpiles held up through the winter. Prices stabilised in March and April, but began declining again in May, falling under $130 a tonne in mid-June. 

Fall in European use

The IEA said China, India and South-East Asian countries are expected to account for three out of every four tonnes of coal consumed worldwide in 2023. European coal use is expected to fall sharply this year as renewables expand. “In the United States, the move away from coal is also being accentuated by lower natural gas prices,” it said.

BMI said buoyant coal supply and demand weakness have resulted in increases in coal inventories globally and sharp declines in prices this year since their 2022 highs. “Supply wise, production in key coal-consuming markets in Asia, including India and Mainland China, has risen significantly,” it said.

“We forecast global thermal coal consumption to grow by 0.69 per cent year-on-year (y-o-y) in 2023, compared to a growth of 4.7 per cent y-o-y in 2022. On the other hand, we expect global thermal coal production to grow by 3.2 per cent y-o-y in 2023, compared to 7.2 per cent y-o-y in 2022,” the research agency said. 

This will result in a wider global surplus of thermal coal, from 293 million tonnes (mt) in 2022 to 521 mt in 2023. The price forecast, however, remains high by historical standards, said AOCE and BMI.

Rising gas supplies

IEA said in 2023 and 2024, small declines in coal-fired power generation are likely to be offset by rises in industrial use of coal. “Global coal demand is estimated to have grown by about 1.5 per cent in the first half of 2023 to a total of about 47 billion tonnes, lifted by an increase of 1 per cent in power generation and 2 per cent in non-power industrial uses,” it said. 

“Coal demand fell faster than previously expected in the first half of this year in the US and the European Union – by 24 per cent and 16 per cent, respectively,” the IEA said.

BMI said Europe will drive global coal demand weakness in the coming months. Alongside an increase in gas supplies that reduced coal usage, a very mild winter at the end of 2022 placed a decisive cap over European coal demand and prices since January 2023, driving the collapse in global prices since then.

The research agency said Mainland China and India continue to lead global coal production and growth on the supply side by supporting planned increases in coal plant permits and providing direct guidance to state-owned miners to boost output.  

India, China set records

China’s production increased by 4.4 per cent YoY during January-May, reaching 1.95 billion tonnes, leading to a substantial increase in coal inventories in the absence of strong demand. In India, domestic coal production during April-May period of the 2023-24 fiscal grew by 7.9 per cent y-o-y to 149.4 mt.

The IEA said China and India set new monthly records in March. China surpassed 400 mt production for the second time ever and India topped 100 mt output for the first time. Also in March, Indonesia exported almost 50 mt, a volume never shipped by any country before. 

BMI said, “while our forecast for 2023 marks a significant departure from the annual average of $358 reached in 2022, it remains markedly higher than price levels before the Russian invasion of Ukraine in February 2022.”  

In the longer term, the research agency expects prices to continue easing as the global economy progresses on its shift away from energy derived from fossil fuels.