Coal India plans to increase prices slowly

Updated: September 15th, 2021 10:10 PM IST

China and India send coal prices soaring amid green-energy push — The benchmark coal price is the highest in the past 11 years and is nearing the all-time high of the mid-$180s seen in July 2008

Coal India plans to increase prices slowly

TOKYO -- The price of thermal coal used to generate electricity is nearing a record high as surging demand in China and India collides with a reluctance to invest in new capacity in a world heading for decarbonization.

While coal is sometimes called the least-loved commodity because of carbon emissions, Asias two largest economies are currently still hooked on the fuel, meaning the rising costs could feed through to higher energy bills and impact economic activity if they persist.

The benchmark coal price was $177.50 per ton on Sept. 10, more than double the level at the beginning of the year and up from about $50 a year ago. The price is the highest in the past 11 years and is nearing the all-time high of the mid-$180s seen in July 2008.

"What we are seeing is a dilemma for investors, financiers as well as companies," said Shirley Zhang, principal analyst at Wood Mackenzie. "Despite the effort of moving the whole region into a cleaner future, you still need coal for the next 10 years."

From aluminum to oil to copper, many commodities prices have risen this year as demand rebounded from the early days of the pandemic and speculators piled in. But even in a white-hot market, coals 110% jump stands out.

In China and India -- which jointly account for 65% of global coal use and are the two biggest importers of the fuel, followed by Japan and South Korea -- demand rose as the scorching heat of summer and economic recovery increased the need for electricity.

Chinas major power producers generated 13.2% more electricity in the first seven months of this year than in the same period of 2020, according to the countrys National Bureau of Statistics. And they needed more coal to do it because a drought led to lower output from hydroelectric power. The result was that in July China was importing 16% more coal than the same month last year.

In India, after suffering from a severe wave of COVID infections earlier in the year, the economy rebounded to the point that April-June gross domestic product grew at a record pace. Demand for electricity, and therefore coal, is expected to increase further as the pandemic continues to ebb and the countrys rainy season ends.

While demand is growing strongly, that is not the case for supply. Short-term disruptions have exacerbated the squeeze this year, and there is little incentive to make investments in new production when public policy is fixed on phasing down coal use to combat global warming.

"The balance between supply and demand is more likely to be disrupted easily as there are few new investments in coal mines," said coal analyst Nobuyuki Kuniyoshi at Japan Oil, Gas and Metals National Corp. (Jogmec). Coal producers have little incentive to produce more coal and lower the price as they see no risk of their market shares being taken by new competitors, he added.

As well as being the worlds biggest user and importer of coal, China is also the largest producer. But the government has restricted activity across the industry after fatal accidents in coal mines, and has implemented reforms to discourage smaller mining operations, which have the worst safety record. As a result, domestic coal production is less likely to rise significantly even when the price soars.

China has been leaning more heavily on Indonesia and Russia for coal after effectively banning imports from Australia amid rising political tension and a trade war with Canberra. But Indonesia, the worlds biggest coal exporter, began restricting shipments abroad last month after heavy rainfall disrupted production. The government barred exports by 34 mining companies it said had prioritized more profitable overseas customers instead of fulfilling domestic obligations.

In late August, Indonesia reversed coal export bans for three companies including PT Arutmin, a subsidiary of the countrys top coal producer PT Bumi Resources, after they complied with domestic market obligations. But restrictions on some companies are expected to continue at least until the end of this year, one coal trader said.

In Australia, the worlds next-largest exporter, coal producers slashed capacity and personnel amid the pandemic last year and remain cautious about dramatically scaling back up, said Kuniyoshi at Jogmec, given the likelihood that demand will shrink in the long run.

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