Coal prices are soaring, hitting $462 per tonne today, up from $186 on the 23rd of February and likely to pass $500 this year.
Russia is Europe’s largest supplier of thermal coal. Last year, Russia supplied EU member states with 70% of total thermal coal imports. A decade ago, Russian coal imports were just half that at 35%.
While total power coal demand has been on a declining trend for the last 10 years, coal-fired power generators in Europe have become increasingly dependent on Russian coal and Russia’s market share has grown substantially over time.
As gas prices continue to soar, European administrations may look to coal to pick up any shortfall in electricity generation as gas usage is scaled back. However, coal consumers will struggle to source additional coal from alternative producers because the supply/demand balance of the international seaborne thermal coal is extremely tight.
“There is simply an almost complete absence of surplus thermal coal available globally. Prices have shot past $400 and the $500 per tonne mark seems to be in play,” says Steve Hulton, VP of Coal at Rystad Energy.
How high could prices go? If sanctions on coal trade with Russia eventuate or there is a physical disruption to Russian rail/port transportation, then the sky’s the limit.