Thermal coal prices have dropped over 60 per cent to near a two-year low, and the decline will likely continue in view of supplies normalising and improving in 2023.
“Average annual coal prices are forecast to decrease in 2023 compared to 2022 but remain well above their five-year average,” the World Bank said in its commodities outlook.
The Australian Office of the Chief Economist’s report said prices of coking or metallurgical coal, used for making steel, are expected to ease slowly, while rates of thermal coal, used in the production of electricity, are expected to decrease further.
Price decline
Newcastle (thermal) coal futures on the Intercontinental Exchange, New York, have dropped to $145.10 a tonne from $388.82 on January 1. On the other hand, hard coking (metallurgical) coal prices on the Dalian Commodity Exchange have dropped from 2,075 Chinese yuan ($290.24) to 1,401 yuan ($195.97) for the third-month contract. Soon after the Ukraine war broke out last year, thermal coal prices topped $400 and metallurgical coal at $600.
In February, BMI, a unit of Fitch Solutions, raised its Australian metallurgical coal price forecast for 2023 from $300 per tonne to $350, on prices being supported by China resuming imports.
However, India boosting domestic metallurgical coal production and muted steel production growth in Japan will prevent prices from rising to the highs seen in 2022, it said.
Impact of La Nina’s end
The Trading Economics Website said a subdued economic recovery in China and muted industrial activity in the manufacturing and construction sectors are proving to be dampeners. Besides, the domestic inventory of coal in China has increased to record high levels.
The Australian Office of Chief Economist said the end of the La Niña cycle should allow waterlogged mines and disrupted terminals and rail to resume full production.
“Prices will also be subject to sudden shifts on the demand side. The possibility of a renewed global downturn remains in play amidst a complex slew of issues, including Covid, the war in Ukraine, higher consumer debt, and weakness in global real estate markets,” it said. Metallurgical coal, in particular, demand may be subject to downside risks, which could drive prices below expectations.
Ukraine war adjustments
The Office of the Chief Economist said the recent decline in global thermal coal prices is expected to continue. “Prices are expected to decline further over the outlook period, primarily as a result of an easing in disruptive weather conditions and the gradual adjustment of global markets to the war in Ukraine,” it said.
The World Bank said thermal and metallurgical coal prices and demand are expected to decline in the medium term. Average annual coal prices are forecast to decrease in 2023 compared to 2022 but remain well above their five-year average.
“Expected short-term increases in coal demand could be compromised by the economic takeoff in China failing to materialise and slower-than-expected global growth,” it said.