Head of Neft Research consulting Alexander Kotov on coal price dynamics

Over the past few years, it is appropriate to compare the global coal market with a patient, the amplitude of whose conditions fluctuates over a wide range: from febrile to low-grade fever. There is a feeling that this will last for a long time. It is difficult to heal an industry that, instead of stable macroeconomic conditions and building strong logistics and trade chains, constantly deals with shocks – epidemics, sanctions, wars, natural disasters.

However, this was not always the case. The global coal market has become so turbulent and volatile, increasingly reminiscent of a roller coaster, only after the outbreak of the coronavirus pandemic in 2020. Then prices fell sharply, and after the widespread lifting of lockdowns and the opening of customs borders in 2021, they began to rise just as quickly.

For comparison: the cost of the CIF ARA 6000 NAR benchmark, reflecting the price level for high-calorie thermal coal in Europe in 2020, did not exceed an average of $50.3 per ton. In 2021, the benchmark jumped to $120 per ton, and already in 2022 the price soared to $290 per ton, or almost six times the 2020 level.

Even steeper ups and downs were observed in the coking coal market. A textbook example is the price dynamics for premium Australian hard coking coal (Premium LV HCC, FOB Hay Point): in 2020 it cost an average of $124 per ton, in 2021 – $224 per ton, and in 2022 the price tripled by 2020, up to $365.

Coal prices have been declining over the past year and a half, but have not yet returned to the lows of 2020, and coal exporters continue to have increased profitability. Thus, in 2024, the CIF ARA 6000 NAR index averages $104.5 per ton, which is double the 2020 figure. The cost of Australian coking coal Premium LV HCC this year remains at a fairly high level of $313 per ton.

However, there is no need to delude yourself: the time for prohibitively high coal prices has passed and a repetition of the peaks of 2022 will not happen very soon, unless, of course, another “black swan” arrives. In the medium term (2025–2026), we do not expect much price volatility in the coal market. A sharp increase in LNG supply, a return of gas prices to the pre-Covid range, as well as the development of generation from renewable energy sources will put pressure on global coal benchmarks.

The slowdown in China’s economy in the coming years will also lead to a decline in coal consumption. Additional negative factors are the increase in production at hydroelectric power plants and the generation of renewable energy sources. Increased supplies to India, as well as growth in domestic consumption in Indonesia, which will restrain stagnant shipments to Japan, South Korea and Taiwan, will have a supporting effect on global coal prices.

Under sanctions pressure, Russian suppliers will be forced to pursue a more flexible pricing policy, providing discounts, but there will be no return to the hypertrophied discounts of 2022. At the same time, the economy of coal enterprises in Russia is extremely sensitive to the decline in world coal prices, the increase in production costs, railway tariffs, gondola car operating rates, and the tax burden. Without stable demand in foreign markets, the rhythm of Russian coal exports will noticeably drop: no one will work at the warehouse. In this regard, we do not rule out a reduction in coal exports from Russia at the end of 2024 below 200 million tons compared to 212.5 million tons in 2023.

Alexander Kotov, head of consulting at Neft Research