As the Russia-Ukraine war rages into its second European winter, demand for Australian thermal coal prices is once again on the rise following 12 months of unprecedented levels of volatility for the commodity.

Newcastle coal prices have risen above $US160 per tonne after bottoming out at a 52-week low of $US131 per tonne in July. The low marked a distinct collapse in the price of the Newcastle thermal coal futures, which shot up to a record high above $US400 per tonne in September last year.

Last year’s rally was spurred by Russia’s invasion of Ukraine, which left many key coal importers hunting for non-Russian sources of coal.

“This time last year, many markets, particularly Japan and Europe, were prepared to pay just about anything to secure the coal they wanted, and they were buying a lot,” said Rory Simington, research analyst with Wood Mackenzie.

“But after a mild northern hemisphere winter, people were sitting on a lot of stock and that’s what partly drove prices down to $US130 a tonne. But now we’re starting to see things tick up.”

Mr Simington added that while demand had staged a tentative recovery in recent months, the lack of supply had continued to hold the price up.

“So, if demand continues along at current levels, I think we’ll see volatility continue and likely see elevated prices that could be north of $US160.”

Likewise, with the next European winter looming, some analysts, such as National Australia Bank’s head of commodity strategy Baden Moore, forecast prices to climb further.

“We think it’ll be another tight winter, so we’re calling prices over the fourth quarter to reach $200 a tonne,” he said.

China returns

“Energy markets are still likely to be short fuel this winter in Europe. So, if there’s any kind of disruption or unexpected outages within the European nuclear fleet or their renewable portfolio, prices could rise.”

Adding to expected demand from Europe is the fast recovery of imports from China.

Australia’s exports of thermal and coking coal came in at 6.69 million tonnes in August, based on Chinese customs data. That’s close to the levels reached before Beijing brought in its ban on Australian coal, which lasted from late 2020 to the start of this year.

“We’ve seen demand from China get back to around 25 per cent of Australian coal exports, which is quicker than we had anticipated,” Mr Simington said.

Twelve months on since prices reached unprecedented levels, Mr Moore said that global coal supply chains were still struggling to pivot to a new demand structure in Europe.

“Everything is so finely balanced in terms of demand and needs, the risk is certainly to the upside on prices,” he said.

Research house BMI is forecasting Australian thermal coal to reach $180 per tonne by the end of the year.

“While our forecast for 2023 marks a significant departure from the annual average of $US358 per tonne reached in 2022, it remains markedly higher than price levels before the Russian invasion of Ukraine in February 2022,” BMI analysts wrote in a note to investors.

Likewise, Morningstar analyst Jon Mills edged up his price targets for NSW thermal coal miner New Hope, despite news of a 2.6 per cent thermal coal royalty for the state’s miners.

The rebound has helped propel a strong quarter for ASX-listed coal miners in NSW, with New Hope gaining 30 per cent, Yancoal jumping 12.9 per cent, and Whitehaven gaining 6 per cent.

“Thermal coal prices remain elevated compared with historical values and cost support, as the Russia-Ukraine war reinforces the importance of energy security,” he said.

“Higher royalties are more than offset by improved near-term thermal and metallurgical coal prices and weaker exchange rates versus the US dollar.”

Mr Simington said traditional pricing metrics for the commodity should see the price fall closer to $US110, but with demand-supply issues remaining in unusual territory, more volatility could still be ahead.

“If you’d told someone two years ago that thermal coal prices would have reached $US400 and above, they would have just laughed at you,” he said.

“But now perceptions of what prices are likely has changed significantly. People are now thinking what happened last year could happen again. Before last year, they wouldn’t have thought it was possible.”

Source: Australian Financial Review