Peak Coal

Coal prices are predicted to hit $300 per tonne this week, a threefold rise that eclipses even the most bullish forecasts made just a few days ago. Experts say there is still no ceiling in sight and predict further upward pressure on European power prices.

Last week Gerard McCloskey, publisher of McCloskey’s Coal Report, suggested that the export price of Australian steam coal, then trading at about $115 per tonne, might rise to $150. Last Friday it jumped to $140, leapfrogging the prevailing European import price, which includes transport and insurance costs. “We’ve never seen anything like it”, says McCloskey in an update interview with lastoilshock.comand Global Public Media, “and there’s no reason to believe that’s the end of the story”.

The price of coking coal has risen even more dramatically. Last week McCloskey suggested the spot price might almost double to $210, but by Friday one multi-vessel deal had been struck at $270. McCloskey now expects the price to hit $300 this week. “People should be really worried; this is going to fuel inflation”. Most coking coal is traded under annual contracts, and the current contract price is $98, but the contracts are about to be renegotiated.

McCloskey says the shortage of coking coal will persist for years, until the expansion of Australian rail and port capacity catches up with demand. Steam coal prices, which have soared following severe weather in China and the power crisis in South Africa, may fall back if the US is able to divert supplies into the Atlantic market – although it is unclear if they have the transport capacity either. “I think we will see these very high price levels for at least 6 months”, says McCloskey.

Even at the current prices, steam coal is still cheaper than heavy fuel oil or natural gas alternatives, says McCloskey, so electricity prices should not rise in most economies. However in the more competitive power markets of the UK and Europe, upward pressure on electricity prices is “inescapable”.

Although the immediate causes of the coal market chaos are above ground – weather, mining and transport capacity - there is a growing body of opinion that believes that coal production has passed its geological peak.