Coal Finds a Surprising 2020 Bright Spot in Europe

October 16, 2020, 4:25 pm | Admin

Power plants started to burn more thermal coal over the summer and fall, responding to a steep rise in the price of natural gas

European coal prices have jumped to their highest level in almost a year, after a surge in natural-gas prices spurred demand for the cheaper fossil fuel.

Prices for thermal coal delivered into northwestern Europe have leapt 50% from their low in May to $57.77 a metric ton, according to data from Argus Media, a trade publication that tracks commodity prices. Thermal coal, the kind that power stations burn to generate electricity, hasn’t cost as much in Europe since late October 2019.

Unusually, coal is now more expensive in Europe than in Australia, where prices were hit by reports that China had curbed imports amid a diplomatic feud with Canberra. Australia’s government has said it is working to clarify the situation. Traders said Chinese buyers are acting as if the restrictions are real, knocking Australian export prices.

Europe’s rally has turned the region into a surprise bright spot in the international coal market. Prices tumbled globally this spring when coronavirus restrictions hammered demand for electrical power, and remain under pressure in the Asia-Pacific region. Taking into account coking coal, which is used to make steel, global consumption is on course to slump 7% in 2020, the International Energy Agency said this week.

uropean governments are moving faster than those in other regions to drop coal from the energy mix to cut planet-warming emissions. The recent rise in prices shows that coal’s decline will be halting, analysts said, with bursts of higher demand even as the continent’s shift toward cleaner sources of energy accelerates.

“There’s still going to be a need for coal,” said Jake Horslen, editor of Argus’s Coal Daily International, pointing to the flexibility that coal gives utilities, especially in the winter when lots of gas is burned for heating. Still, “it does look like coal is going to be phased out sooner rather than later,” Mr. Horslen added.

Coal prices measure slightly different things in Europe and Australia, reflecting their positions in the market. In northwest Europe, they reflect the price of coal delivered to a port, including insurance and freight costs. The benchmark in Australia, one of the biggest exporters, represents the price of coal cleared for shipment and loaded onto a vessel.

European power plants started to burn more coal over the summer and the early autumn as natural gas became steadily more expensive. Gas prices in northwestern Europe have more than quadrupled from their trough in May, partly driven by a fall in the supply of liquefied-natural gas from the U.S.

“In Germany and in some of the other markets, you actually saw coal-fired power generation come back into the market, just because it was cheaper,” said Matthew Boyle, lead coal analyst at S&P Global Platts. “That was part of the reason why we did see a sort of rally.”

Gas prices have risen faster than the price of carbon permits, which utilities and other users of fossil fuels purchase under the European Union’s emissions-trading program. That created a financial incentive to dial back gas consumption, burn more coal, and buy carbon permits to cover the extra emissions.

“It’s actually making coal burn fairly attractive,” said Georgi Slavov, head of fundamental research at commodities brokerage Marex Spectron. Half of Europe’s coal-fired power-plant capacity was in use this week, Mr. Slavov calculates, up from under a 10th at the start of June.

Giving prices an additional boost: Crimped output in Colombia, Europe’s second-largest source of thermal coal after Russia.

Workers at Colombia’s Cerrejón mine, jointly owned by BHP GroupAnglo American PLC and Glencore PLC, went on strike in August. Meanwhile production by Prodeco Group, a unit of Glencore that owns two mines in the country’s northern Cesar region, has been suspended since March.

“There’s huge concern right now about the availability of Colombian coal,” said Mr. Horslen.

American miners stand to benefit if the rally in European thermal-coal prices keeps running. U.S. exports to Europe, which have steadily declined in recent years, could start to pick up if prices rise to around $65 a metric ton, two traders said.

Any uptick is likely to be fleeting, however, as Europe continues to pivot from thermal coal to gas and renewable sources of energy. “You have to get past 60 bucks to get the Americans in,” said David Price, senior director in IHS Markit’s coal unit. He doubts prices will get that high.

In the long run, the outlook for thermal-coal suppliers in Europe remains gloomy. Coal consumption will drop by nearly 60% in the EU from 2019 through 2030, faster than in any other region, the IEA said. The power sector is set to account for almost all of that decline, suggesting the pressure will be particularly acute for producers of thermal coal.

Portugal is likely to close all its coal-fired power plants by 2021, followed by France, the U.K., Ireland and Slovakia in the following years, the Organization of the Petroleum Exporting Countries said this month.

Source: https://www.wsj.com/articles/coal-finds-a-surprising-2020-bright-spot-in-europe-11602763826

Last modified on October 16, 2020, 4:29 pm | 1353