The Hurricane Ida, which hit the US gulf coasts last month led to soaring energy and petrochemical prices where oil, PVC and coal prices witnessed an upswing, while oil price rally witnessed a cool-off, coal prices made new highs, touching $150/ton.

Despite the moniker of the ‘least-liked commodity’ and active government-level action to restrict its usage, coal prices consistently trended upwards since November 2020, surging by over 2.5 times within ten months.

China and India the driving force behind coal’s surge:

China and India are the two largest coal consumers, with a combined global share of 65%. The commodity comprises 61% of China’s energy mix and 73% of India’s.

Notably, China’s electricity demand was up 16% in 1HCY21, while India’s electricity demand also rose 16% YoY in August 2021, crossing levels last seen in CY19.

Coal utilization in both countries rose rapidly to meet the electricity needs, evidenced by China’s coal consumption increasing by 11% YoY to 2.1bn MT in 1HCY21 and India’s coal-based electricity output rising by 24% YoY.

Global commodities have remained strong in the last one month where demand side dampness has resulted in a slight MoM decline in oil prices while supply tightness has resulted in wheat prices increasing. On the other hand, coal prices continue their upward trek as power generation demand remained strong.

Electricity demand rising as economies open:

Despite growing restrictions on coal usage in several countries, including China, India, and the US, global coal prices staged a sharp rally towards record-high levels. The surge in prices is a result of demand-supply imbalances.

Economies opened up rapidly post the wide-scale vaccine deployment, and the electricity demand shot up. During 1HCY21, global power sector emissions increased 12% from lows witnessed in 1HCY20 and up 5% from pre-pandemic levels.

Outlook:

Coal prices are seen stabilizing as supply catches up. Nearly 70mn MT of coal supply has come online in China during August 2021 as the Chinese government ordered to resume operations of previously shut mines.

Indonesia’s coal supply may also pick pace after the country’s mining operations were disrupted by torrential rains.

As operations normalize, Indonesia projects its coal exports to grow by 33% YoY during 3Q to 109mn MT. Coal futures are reflecting the expected supply and demand normalization of the commodity as its prices are exhibiting a drop of 30% within a year.