In a June 18 Barchart article on coal prices, I concluded:
Coal prices have been consolidating over the past year, but the current economic and geopolitical landscapes suggest that when prices break out of the tight trading band, they will likely move higher.
On June 17, nearby ICE Newcastle coal futures prices were at the $135.15 per ton level, with coal futures for delivery in Rotterdam, the Netherlands, at the $110.55 per ton level. In September 2024, the prices were slightly lower as crude oil and natural gas prices declined.
Crude oil and natural gas prices move lower since mid-June 2024
Nearby NYMEX crude oil and natural gas futures were at the $83.28 per barrel and $2.795 per MMBtu levels, respectively, on June 17.
The chart illustrates that NYMEX WTI crude oil for October delivery fell 11% from $78.27 on June 17 to below $70 in mid-September 2024.
Over the same period, October NYMEX natural gas futures declined 19.7% from $2.928 to $2.352 per MMBtu.
Oil and gas prices have declined since June as the oil market moves past the peak driving season when gasoline demand peaks. Meanwhile, natural gas is moving toward the peak heating demand season, but U.S. inventories are above last year’s level and the five-year average, weighing on prices.
Rotterdam coal declines
While oil and gas prices have declined, ICE coal futures for delivery in Rotterdam, the Netherlands, have edged lower since June 17.
The chart shows that Rotterdam coal prices have moved 7.3% lower, from $118.20 on June 17 to $109.60 per ton in mid-September.
As the 2024/2025 winter approaches, coal demand for power generation has likely supported the price of coal.
Newcastle coal prices move to the downside
Australia is the fourth leading coal-producing country, and its proximity to China and India makes it a significant exporter to the world’s most populous countries.
Coal for delivery in Newcastle, Australia, has also edged higher over the past months.
The chart highlights the 5% drop in ICE Newcastle coal futures, which decreased from $140.00 per ton on June 17 to $133.00 per ton in mid-September.
China and India have a huge appetite for coal that U.S. energy policy will not impact
While fossil fuels, including crude oil, natural gas, and coal, are on the November U.S. ballot, and the future energy policy could impact U.S. production and worldwide supplies, China and India will continue to burn coal to generate power.
As the chart highlights, China consumes over four times as much coal as second-place India. Meanwhile, Indian coal consumption is around 2.7 times higher than that of the United States, the world’s third-leading coal-consuming country.
Economic growth in China and India could be explosive for coal prices
The path of least resistance of coal prices over the coming months and years is a function of economic growth in China and India. The world’s most populous countries have the potential to consume more coal over the coming years as they do not participate in green energy initiatives.
Meanwhile, China’s sluggish economy has weighed on energy demand. When the Chinese economy recovers, coal prices will increase as Australian and other coal demand increases.
Coal prices rose to record highs in 2022 after Russia invaded Ukraine. The bifurcation of the world’s nuclear powers caused supply fears and concerns about the logistical routes that take coal supplies from producing to consuming countries. In March 2022, coal for delivery in Rotterdam rose to a record $465 per ton, over 3.8 times the current price level. Newcastle coal futures reached a $465 per ton high in September 2022, over 3.2 times the current price.
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 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.
