In August 2023, when nearby Rotterdam ICE coal futures were trading at the $122.70 per ton level, and the ICE Newcastle ICE coal futures were at $158.50 per ton, I wrote:
Meanwhile, the war in Ukraine and Russia’s use of energy as an economic weapon are reasons to maintain vigilance. The geopolitical landscape remains a clear and present danger that could cause traditional energy prices to spike higher. A recovery in China and a cold winter in Europe could create another perfect bullish storm for coal over the coming months.
Coal prices have moved lower since late August 2023, as the Chinese economy and stable to lower oil and gas prices have weighed on coal. However, prices have moved into a sideways trading range in 2024, and the potential for another price spike remains high as the war in Ukraine continues. Coal’s path of least resistance depends on Chinese and Indian demand and oil and gas prices.
A sideways trading range in Rotterdam coal
After the explosive rally to a record $465 per metric ton in March 2022, coal prices for delivery in Rotterdam, the Netherlands, plunged, reaching a $91.75 per ton low in May 2023.
As the ten-year chart highlights, Rotterdam coal futures have traded in a narrow $92.45 to $116.50 per ton range in 2024, holding above the May 2023 low. Technical support is at the May 2023 low, and Rotterdam coal prices have traded in a directionless range.
The same sideways pattern in Newcastle coal
Meanwhile, coal for delivery in Newcastle, Australia, has been going nowhere fast in 2024.
The ten-year chart highlights the plunge in Newcastle coal futures that took the price from $457.80 per metric ton in September 2022 to $115 in February 2024. While Newcastle coal futures fell to a low in early 2024, the price has traded in a narrow $115 to $137.50 range in 2024 and was at the $124.50 level on March 22.
China and India will determine the path of least resistance of prices
China and India are the most populous countries, with over one-third of the world’s inhabitants.
The chart shows that China and India dominate the world’s annual coal consumption. Coal is a critical energy commodity as the fossil fuel is a crucial ingredient in electricity generation. While the U.S. and Europe have moved away from coal because of climate change initiatives, China and India continue to burn coal.
Since the world’s most populous countries depend on coal supplies, growth or contraction in the Chinese and Indian economies influence coal prices. In 2024 and throughout 2023, economic weakness in China has weighed on many raw material prices, and coal is no exception. However, a rebound in China could cause a rally in Rotterdam and Newcastle coal futures prices, which have consolidated after reaching bottoms in May 2023 and February 2024.
Crude oil has been trending higher- Rising petroleum supports higher coal prices
Coal is one of the three leading fossil fuels. Crude oil and natural gas are hydrocarbons, along with coal. U.S. natural gas prices have plunged from the highest price since 2008, at over $10 per MMBtu, in August 2022 to below $1.70 on the nearby NYMEX Henry Hub natural gas futures market. Nearby futures reached a $1.522 per MMBtu low in February 2024 before recovering, but they remain under significant pressure as the 2023/2024 withdrawal season is ending, and natural gas will increase inventories over the coming months.
Meanwhile, NYMEX and ICE WTI and Brent crude oil prices have significantly corrected from their 2022 highs. After trading above the $130 per barrel level in 2022, WTI futures declined to $63.57 per barrel in May 2023, and Brent futures reached a $68.20 low during the same month. WTI futures were near $81 per barrel on March 21, with the Brent futures recovering to over $85.60 per barrel. WTI and Brent futures have been slightly bullish in 2024, supporting coal prices as fossil fuel is a complementary alternative to crude oil in China and India.
Coal is on the ballot for the November U.S. election
As the chart of annual coal consumption shows, the United States is still the world’s third-leading coal-consuming country, burning more than twice the amount of the hydrocarbon than fourth-place Russia.
Coal and other fossil fuels will be on the ballot in the November 2024 U.S. presidential election. The Biden administration has made climate change, which it considers an “existential threat,” the central focus of U.S. energy policy. A second term will likely see more regulations and initiatives supporting alternative and renewable fuel production and consumption that inhibit hydrocarbons. Meanwhile, the presumptive Republican nominee, former president Trump, and most Republicans support energy independence through “drill-baby-drill” and “frack-baby-frack” policies. The United States has substantial untapped coal, oil, and gas reserves.
China and India have not signed on to global climate change initiatives. Therefore, a second Biden administration term could cause higher fossil fuel prices, while a Republican victory would likely increase fossil fuel output, weighing on prices.
The Chinese and Indian economies and their demand for coal are significant factors for the path of least resistance of Rotterdam and Newcastle coal prices over the coming months. Meanwhile, the results of the U.S. election could also move the commodity that climate change activists consider a four-letter word.
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.
