silver steel mining crane on black rocky soil during daytime

Thermal Coal Prices on the Track to a New Rally in 2022

The price of coal is on the rise again, after prices virtually exploded last year, the signs are now pointing to a new rally.

At the beginning of 2021, hardly anyone could have guessed what strong year coal prices would have. In January, the price was still just under $70 per ton, which was the case until May. After that, prices started to pick up and rose over 330% to $275 per tonne, before easing back to just under $130 per tonne. Currently, however, prices are starting to rise again.

YTD, prices have already increased 13% and are currently trading at $162 per ton.

The price has picked up again after Indonesia decided to ban a temporary coal export. The background was the domestic power supply, as mines had not met the legal requirement to sell 25% of their production to domestic utilities. As a result, the country’s inventory slowly dwindled, threatening nationwide blackouts. In response, the Indonesian government has decided to fine mines that do not comply with the law and to ban exports.

This export ban mainly affects Asian customers from Japan and China, which are the biggest buyers of Indonesian coal. Indonesia is also the world’s largest coal exporting nation.

China, for its part, has allowed its domestic coal mines to produce at full speed. In 2021, Chinese coal mines produced 4.07 billion tons of coal, an increase of 4.7% compared to the previous year. In December alone, 384 million tons were produced, an increase of 7.2% year-on-year. Back in October last year, the Chinese government decided to counter rising coal prices and ordered domestic mines to produce at full capacity. This was especially important for the domestic economy as it would have put pressure on economic growth. Since the outbreak of the COVID pandemic in 2020, China had been in dispute with Australia, which resulted in the Chinese importing less coal from Australia. This has caused domestic coal prices to rise sharply.

Running the Chinese mines at full capacity will not end in early 2022, especially after the Indonesian coal export ban. Especially due to the fact that in 2021 the domestic electricity demand increased by 10.3% compared to the previous year, according to the National Energy Administration.

The signs for a new rally in the year are good for coal. The major coal producers have also made gains YTD.

Shares of BHP Group, one of the largest coal producers, have already gained 10.11% this year to $66.45.

The Rio Tinto Group share is already up 13.13% YTD and is currently trading at $75.73.

Shares of Vale S.A. have also gained this year, rising 10.63% to $15.51.

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