The Magazine for Asian Investors
Coal remains a hot commodity in 2022 even after a very good year in 2021. The coal price has already risen over 32% YTD and is currently trading at $183.00 per ton.
The benchmark Newcastle Coal is also continuing to advance. Prices have already risen by over 44%. At the beginning of the year, one paid $155.00 per ton, whereas today one has to pay a price of $227.30 per ton.
So coal, which is disliked by the big thinkers, continues to experience an upswing, not only in price but also in demand.
According to the International Energy Agency, demand for coal will reach a new high in 2021. While the global share of coal-fired generation is expected to be 36%, 5% below the 2007 peak, the share of coal-fired generation in the U.S. and Europe is expected to increase by nearly 20% by 2021. In China and India, the share of coal-fired power generation is reported to have increased by 9% and 12%, respectively.
But the great thinkers of this world have other plans for future power generation.
Coal-fired power plants are considered one of the largest sources of greenhouse gases in existence. The major governments of the world want to phase out coal power as soon as possible. Although their reputation has more than suffered in recent years, most countries are more than willing to rely on coal power. More than 35% of global electricity production is generated from coal power.
Coal power is considered base load power, meaning it always produces energy regardless of the weather or time of day.
Countries that want to decarbonize will sooner or later be forced to close their coal-fired power plants. This means on the one hand a lower demand for coal and on the other hand that the big coal producers will have to think about their portfolio in the future.
The first large mining companies are already taking the first steps and want to get rid of their coal mines. Anglo American has sealed its coal exit with the sale of its 33.3% stake in the coal mine in Colombia. BHP wants to sell its coal mines by the end of 2022. Another example could be observed in India. In an auction in which 67 coal mines were put up for auction, no bids were received for over 70%. The reasons given were environmental concerns and low margins.
Blackrock and other large financial institutions have revealed the first plans to accelerate the phase-out of coal power. Decarbonization is the big driver here as well. It remains to be seen, however, what time frame is being talked about here. The plans are currently being reviewed by other credit institutions.
Even if the world wants to go in the direction of decarbonization, one should nevertheless also look at the other side.
For many countries, coal power is essential and will remain so in the near future. This is also supported by the fact that more than 600 new coal-fired power plants are being built around the world. So the demand for coal will still be there.
Major investments in comparable alternatives are needed to replace coal-fired generation. Comparable alternatives are available with natural gas or nuclear power. However, the first is also considered a major greenhouse gas emitter. So there remains only the unloved nuclear power as a cleaner alternative. In fact, if we look at the CO2 values, we can see that nuclear power is the cleanest way to produce electricity.
It remains to be seen to what extent individual countries will want to take this step, as investments of this magnitude require a great deal of capital.
In summary, efforts to phase out coal are being driven by major players. It should not be forgotten that comparable alternatives are available, but they have to be built first. All of this indicates that coal mines will be with us for at least the near future, if not longer.