Coal shortages drive up prices and strain economies

Coal supply shortages are pushing fuel prices to record highs and laying bare the challenges of weaning the world economy from one of its most important and polluting energy sources.

The crisis has many causes, from the post-pandemic boom to supply chain tensions and ambitious carbon reduction targets. And it is expected to last at least all winter, raising fears in many countries of fuel shortages in the coming months.

Australian thermal coal from Newcastle, a global benchmark, is trading at $ 202 per metric tonne, three times more than at the end of 2019. Global production of coal, which generates around 40% of the world’s electricity, is lower by about 5% than before the pandemic. levels.

In Europe, rising prices for coal and other energy resources have affected factory output and pushed up household energy bills. Large Asian coal importers, including Japan and South Korea, are scrambling to secure their supplies.

In China, dwindling supplies and soaring costs have led to power shortages on a scale not seen in more than a decade, hitting the industry and prompting some cities to put out traffic lights to save energy. .

It’s a stark reminder of how large parts of the world depend on coal, just weeks before a United Nations climate summit in Glasgow aimed at accelerating the shift from fossil fuels to renewables.


China, the world’s second-largest economy and the largest consumer of coal, is at the heart of the current crisis. As Beijing sought to meet its climate goals, it allowed coal stocks to decline. On top of that, he halted imports of Australian coal amid a diplomatic row.

The fallout from last year’s decision is still reshaping global coal supply chains, attracting new buyers to Australia and prompting China to venture as far as Latin America, Africa and Europe in its search for alternative suppliers.

Globally, the supply of coal has not kept pace with demand driven by the strong global economic recovery from last year’s pandemic crisis. Last year, production fell about 5% from 2019. And increasing production is taking time, according to charcoal producers. They say it can take nine months to get new mining trucks and even longer to install new equipment in the mines.

“We are at the peak in terms of capacity,” said Isidro Consunji, chairman of the Philippines’ largest producer, Semirara Mining & Power Corp., most of whose exports go to China. “The price of coal has increased four times in the past year. I don’t think anyone in the world expected such a situation.”

Global dependence on coal has tended to fluctuate based on economic growth rather than governments’ climate ambitions, analysts said. Global coal use fell last year during the pandemic, but is expected to reach or exceed 2019 levels this year.

“When economic growth collapses, demand for coal slows down and everyone thinks we are moving away from coal, but as soon as growth returns, coal use picks up again,” said Rory Simington, analyst at energy researcher Wood Mackenzie. “There is a difference between what people perceive about the energy transition and what is actually happening. “

Part of the coal supply crisis is due to production shutdowns as countries try to meet their emissions targets. Spain, for example, shut down half of its coal production last year and promised to phase out all coal-fired power plants by 2030.

The upheaval in the sector extends a decades-long transformation of coal trade patterns, marked by “a shift to Asia and Europe’s decline in international coal markets”, according to the International Energy Agency based in Paris.

The rise in Asia is helping to boost prices. A third to a half of the coal from Australia, one of the world’s largest coal exporters, went to China before Beijing, stung by Canberra’s call for an independent investigation into the origins of Covid-19, n ‘imposed its unofficial ban last fall.

For other Asian economies, the sudden availability of Australian supply has been a boon. As China depleted coal stocks in early 2020, demand for Australian coal increased in South Korea by 56% in the first half of 2021 and by 65% ​​in Japan, according to official data.

Yet Australian exports are unlikely to bridge the gap between growing global demand, the race to stock up for the winter, and bottleneck supply. Analysts estimate that global coal exports this year are expected to increase by around 2.5% from 2020, but demand is expected to have grown at nearly double that rate.

India nearly doubled its July imports of Australian metallurgical coal, used in steelmaking, year-on-year, reinforcing a trend since the start of the year, although its supply is still insufficient .

In Japan, a spokesperson for Nippon Steel Corp. said it had stepped up its purchases of Australian coking coal this year as demand for steel rebounded amid an economic recovery from the pandemic.


At some of Japan’s power plants, expectations of generation shortages this winter prompted Japan’s largest power producer, JERA Co., to carry out early checks of the plants to ensure sufficient electricity supplies, said a spokesperson.

In recent years, Australia has supplied an average of 85 million metric tonnes of coal per year to China, more than Canada’s annual production. To make up for this shortfall, China has exploited nations near and far, in some cases more than twice as far away as Australia. Coal imports from Russia roughly doubled year over year in the first eight months to 21 million metric tonnes. US coal quadrupled to 5.7 million tonnes during the period.

Asian suppliers stepped in to replace Australian volumes destined for China. Filipino producer Semirara said its average selling price of coal rose 49% in the first half of this year due to rising demand from China. The company is trying to increase its capacity to meet higher demand.

China’s attempts to find new buyers have not been smooth. As Beijing’s feud with Canberra escalated, the Chinese have attempted to block purchases of Indonesian coal, most of which is low-grade increasingly shunned by global markets. But episodes of heavy rains disrupted supplies. Indonesian coal exports to China fell 8.6% month-on-month in August, following similar declines in January, April and May, official data showed.

Colombia and Kazakhstan are among the unlikely winners. Prior to this year, the Latin American nation had only been an occasional source for China. Colombian steam coal exports to China nearly doubled from a year earlier to reach 2.8 million metric tonnes in the first eight months of the year. China’s share of Colombia’s metallurgical coal shipments rose to 21%, from 0.6% in 2019.


The Colombian Ministry of Mines and Energy has estimated that coal production could increase by up to 50% this year from 2020. Juan Miguel Durán, president of the National Association of Mines of Colombia, said that the The boon to the South American nation is expected to last for years because demand from economies rebounding from the pandemic exceeds global capacity to transition to greener energy. Colombian coal production continues to attract strong interest from Chinese, Indian, Japanese and Korean investors, he said.

“We are in a window of opportunity from which we must take advantage and expand our mining potential,” said Mr. Durán.

At the end of August, Colombian Natural Resources, the country’s fourth largest producer, reactivated processing facilities it had closed last year due to low prices and the pandemic. But the replacement equipment to increase supply requires at least six months to a year to be put in place, said Mr. Consunji of Semirara.

“Last year’s prices were so low that no one could make any money, so we postponed purchasing more replacement equipment,” Consunji said. “But there will be a lag before the offer comes back.”

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