In a September 17, 2024, Barchart article on coal futures for delivery in Rotterdam, the Netherlands, and Newcastle, Australia, I concluded:
The economic conditions in China and India will determine the path of least resistance of coal prices over the coming months and years. While environmentalists continue to believe coal is the traditional energy sector’s four-letter word, China and India will continue to burn fossil fuels as the demand for power rises with the population and is a function of economic growth. Expect higher coal prices to rise if production cannot keep pace with the rising demand. While China and India are the world’s leading coal-producing countries, they are also leading coal importers, as Chinese and Indian production falls short of their consumption.
With over one-third of the world’s population, coal demand will remain robust, and U.S. and European efforts to limit production may only raise coal prices over the coming years.
On September 16, nearby Rotterdam coal futures were at the $109.60 per ton level, and Newcastle coal futures were at $133 per ton. Over the past weeks, the coal futures have edged higher.
Rotterdam coal edges higher
After reaching an $85 per ton low in mid-2023, coal for delivery in Rotterdam has edged higher.
The three-year chart highlights the sideways pattern with a bullish bias in Rotterdam coal futures on the European Intercontinental Exchange that has taken the fossil fuel to around the $120 per ton level in early November 2024. Rotterdam coal is around 41% higher over the period.
Newcastle coal follows a similar pattern
Coal futures for delivery in Newcastle, Australia, have followed the same slightly bullish pattern.
The three-year chart illustrates the upward bias from the January 2024 $115 per ton low to the $144 level. Newcastle coal futures are around 26% higher since the end of January 2024.
Australia ships lots of coal to China
An article from the Institute for Energy Economics and Financial Analysis, published in July 2024, shows the coal flows from Australia to Asian importing countries.
The chart shows that China leads in Australian coal imports, with India second. China and India are the world’s most populous countries, with over one-third of the world’s population. Meanwhile, China and India have not followed the U.S. and Europe’s climate change initiatives and continue to burn coal for power generation.
Meanwhile, China’s economic malaise has caused its commodity consumption to decline, and coal requirements have been no exception. In 2024, the weak Chinese economy has weighed on coal prices.
Chinese stimulus could end economic malaise, spurring commodity demand
The Chinese government announced measures to stimulate China’s economy in September 2024. The central bank reduced interest rates and lowered bank reserve requirements to bolster economic growth and achieve the government’s 5% GDP growth target. While many analysts continue to forecast sub-5% growth in 2024, the stimulus could reignite economic activity and cause commodity and coal consumption to rise over the coming months and into 2025.
Rotterdam and Newcastle coal futures prices plunged from the 2022 highs and remain not far above the mid-2023 and early 2024 lows. However, the coal prices have moved into a consolidation pattern, meaning they could have limited downside risk and significant upside potential.
Seasonality and war in Ukraine and the Middle East could ignite coal prices over the coming months
Coal prices tend to display seasonality. Power plants often consume more coal during summer, increasing the demand in spring. Meanwhile, industrial demand from steel and aluminum production tends to occur during the fall. Finally, mines require maintenance, often during the fall.
Meanwhile, the ongoing war in Ukraine has threatened natural gas flows from Russia to Western Europe as sanctions and support for Ukraine have made Russian natural gas a retaliatory economic weapon. A cold winter in Europe could cause increased coal and nuclear energy demand to replace natural gas during the peak heating season.
Coal prices also tend to follow crude oil prices, which have been trending lower. The escalating war in the Middle East between Israel and Iran and its proxies could cause sudden crude oil disruptions and supply concerns. Any hostilities impacting crude oil production, refining, or logistical routes and hubs in the Persian Gulf or Straits of Hormuz make crude oil prices subject to sudden upside spikes. The correlation between crude oil and coal prices could significantly impact the Rotterdam and Newcastle coal prices, as we witnessed in 2022.
Meanwhile, China continues to be the world’s most influential commodity-consuming country. If stimulus boosts economic growth, coal demand will likely rise, putting upside prices on the fossil fuel as it sits in a consolidation pattern.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
