Coal prices have risen again in the last seven days after Russian energy products, including coal, are again openly discussed. The EU Commission has come out in favor of tightening sanctions against Russia, which means a ban on energy products from Russia. It should be clear to most economists and politicians that this is not an easy undertaking, because there is a great dependence on the products that Russia supplies.
The price of the reference coal Newcastle Coal has risen again in the last 7 days by over 13%. That makes a gain of just over 45.5% this year, even though the price briefly rose over 115% in late February when Russia invaded Ukraine. After that, the price fell again and is currently at $285.00 per ton.
As support for an embargo grows, so does the question of substitutes that must be sourced elsewhere. Indonesia and Australia have recently reported that they cannot replace the quantities needed by Europe.
The target for this year in Indonesia is 663 million tons, which the government has spent on local mines. This means the mines are already more than at capacity, as they have faced various restrictions since the beginning of the year, including an export ban and bad weather. As a result, exports from January to March are already reported to have fallen by 15 million tons to 37.64 million tons. As if that were not enough, there is another problem, namely that coal from Indonesia is of lower quality. However, European buyers mostly need medium to high-quality coal. This could be a major problem.
Australia could supply it, but there are issues here as well. For one thing, the output of Australian mines is at capacity due to existing customer contracts, and here, too, the output cannot be increased from one day to the next. In addition, there are local problems such as the COVID 19 control measures, which lead to labor shortages.
Coal is a game for contrarians since anyone betting on coal these days has to go against the thinking of the big leaders and the media. And exactly that could become the right environment for rising prices.