Atlantic thermal coal markets look set for a somewhat calmer time in 2024 after the turbulence of recent years even as natural gas supply security issues and the ongoing coal phaseout continue to reverberate, with market players citing developments in government policy and demand from larger Asian markets as two key areas to watch.
Overall outlooks for pricing in 2024 are somewhat negative with weak macroeconomics expected to weigh on demand. But sources expect prices to be steadier as there is likely to be less of a restocking surge in demand following what has so far been a mild winter, while import demand from larger Asian markets — particularly China — is expected to be much lower after a record 2023.
Ongoing trade flow disruptions and a lack of any new coal supply should keep a floor under prices, however, with sources expecting CIF ARA levels to hold over $100/mt throughout the year.
The European market saw sporadic ups and downs during 2023 driven by logistical challenges and volatility spilling over from the gas market, although these periods were mostly short-lived and, overall, prices maintained a downward trend from the record-highs of 2022.
A downturn in demand saw CIF ARA 6,000 kcal/kg NAR thermal coal prices slump to their lowest levels since the middle of 2021, with Platts assessing CIF ARA coal prices at $95/mt on July 13, nearly halving from $185/mt at the beginning of the year, according to S&P Global Commodity Insights data. CIF ARA prices then rebounded sharply in tandem with a surge in gas prices in October, reaching $153/mt on Oct. 16.
Since then, “as concerns about gas shortages have eased and we’ve seen enough gas in Europe, coal plants have just fallen down the merit order as gas plants have been cheaper to run,” a Germany-based trader said.
“Looking ahead, it’s hard to be too bullish,” the trader added, noting however that some higher prices were likely “at some point to attract the required coal into the European market.”
While Europe remains committed to a coal phaseout, several coal plants were brought back in for reserve due to gas supply concerns, which has helped keep coal demand firmer than previously expected. Full-year imports to European countries are expected to be around 56-60 million mt for 2023, down from the bumper 2022 — when concerns over Russian coal sanctions drove a spike in demand — but well above previous expectations given the long-term terminal decline in European coal demand.
Although not expected to restore any long-term coal demand, there were requests toward the end of 2023 that the lifeline on these emergency plants be extended through 2024, and coal demand in 2024 is expected to fall by only 5-6 million mt compared to 2023.
Furthermore, at the COP28 climate conference toward the end of the year, several European countries postponed their coal phaseout targets by several years due to inadequate replacement plans. They included Italy, which has delayed its national coal phaseout from 2024-25 to 2027.
This will likely keep European coal demand firmer than previously expected, although market sources said any such demand would be marginal, and largely dependent on European gas supply security, which has been a primary factor in coal demand and indeed coal pricing for the last few years.
Pressure on major exporters
Government coal policy outside of Europe will also be watched closely, with political pressure for change building in major exporters such as Colombia and South Africa.
Disputes with local communities have long been a speedbump for Colombia’s coal producers, and now the government has made pledges to block open-pit coal mining where local communities object. While no significant reduction in production or exports is anticipated in the coming year, there is potential for issues to cause some interruptions to supply.
Colombia’s exports, facing some pressure from demand shifting more to Asia, are forecast to decline by around 2 million mt year on year to 59 million mt in 2024.
In South Africa, there have also been growing calls to reduce the country’s coal industry although it should be relatively insulated from such action for now given its essential role in the country’s power generation and as a major employer, which makes any changes politically sensitive. But even so a lack of investment in new mine developments, or even extensions of older mines, in in recent years has reduced the average quality of coal produced in the country.
The most immediate factor for South African coal exports, which totaled around 63 million mt in 2023, is whether state-owned Transnet is able to resolve problems with derailments and theft on rail lines to the dedicated export terminal at Richards Bay.
Trade flows
The key change in trade flows over the last two years has been the displacement of Russian coals from the European market, as a result of sanctions following Russia’s invasion of Ukraine. This pulled more high-CV coal from Colombia and South Africa into Europe, and sent more Russian coal into the Mediterranean.
Despite the year-on-year decline in thermal coal imports to Turkey, Turkish coal-fired generation is expected to reach a record 24% of the Turkish power mix this year as coal-fired generation continues to be boosted by the availability of discounted Russian coal.
This is expected to continue in 2024, barring any unexpected turnaround in EU sanctions, maintaining the development of a two-tier market where cheaply discounted Russian coals are sold into Turkey and further afield into markets such as India.
In Pakistan, meanwhile, weak economic conditions, a drive to increase domestic output and a depreciation of the rupee against the dollar, which has made imported material significantly more expensive, has seen imports almost halve in 2023 and this is expected to continue into next year.
