Industrial Metals

Coal Investing

As the world moves towards green energy, what will happen to coal? Read on to learn what analysts see for the coal outlook in 2020.

Click here to read the latest coal outlook.

This time last year, many expected coal prices to continue to fall, even though demand was estimated to remain stable throughout the year. 

In fact, coal performed with volatility again in 2019 as weakening demand put pressure on prices.

As the year comes to an end, what can investors expect in 2020 from coal? Read on to learn more about coal’s performance in 2019, as well as what analysts and market watchers had to say about the space and the coal outlook for next year.

Coal trends 2019: Price continues to decline

For experts, one of the undeniable main trends in the coal space this year has been the price declines for both thermal coal, used to generate electricity, and metallurgical coal, used to make iron and steel, due to loosening supply/demand fundamentals.

“The benchmark premium hard coking coal price is currently US$135 per tonne, which is US$90 lower from the same time last year,” said Paul Butterworth, research manager at CRU Group. He stated that this was anticipated at the end of 2018.

“Everybody expected India to be an important source of steel and metallurgical coal demand growth, but weak macro conditions have weighed on Indian steel demand this year,” he added.

Another trend seen in the metallurgical coal space has been that global steel margins have shrunk significantly compared with 2018 levels, while steel capacity is increasing, according to Butterworth.

Similarly, both demand and supply have eased further for thermal coal, keeping prices muted.

“Demand has been weakened by a transition from coal to gas in Europe, as well as by industrial-sector weakness in China, which is a key import destination for Australian coal,” FocusEconomics analysts said in their latest report. “Meanwhile, weakened demand dynamics have translated into lower global supply as producers cut their output in the face of an oversupplied market. Consequently, the slide in prices was somewhat cushioned.”

Thermal coal prices started the year trading around US$98.56 per tonne to end 2019 at US$66.99.

In terms of investments in the space, it’s interesting to note the difference between thermal and metallurgical coal projects.

“We observed this year that while investor scrutiny, environmental challenges and shareholder pressure are leading to a lack of investments in developing new (seaborne) thermal coal capacity, capital is still being spent to develop/expand high-quality metallurgical coal projects,” Butterworth said.

Coal outlook 2020: Prospects to vary by region

As the year comes to a close, experts predict that next year could be tough for the coal space.

CRU Group’s Butterworth expects to see demand improvements for metallurgical coal, especially from India in the second half of 2020.

“Furthermore, prices have fallen to such an extent that many high-cost mines are generating poor margins and we are now seeing some supply cutbacks,” he said. “We believe more uncontracted high-cost supply will go offline next year.”

On the back of these supply cutbacks and slightly better demand, CRU Group expect prices to increase from current levels.

“However, we do not expect prices to reach 2018 levels anytime soon,” Butterworth added. “Chinese policy on coal imports and domestic supply will have a key influence on global coal prices.”

According to the International Energy Agency, there are strong regional disparities in the outlook for coal.

“In many advanced economies, coal demand for power is in deep structural decline, hastened by specific phase-out commitments, the continued rise of renewables, competition from natural gas in the United States and higher CO2 prices in the European Union,” its World Energy Outlook states.

Coal demand is also expected to drop in China, by far the world’s largest coal consumer, due in large part to a strong policy push to improve air quality. However, in other parts of Asia, developing countries are increasing their use of coal to satisfy fast-rising demand for electricity and industrial development.

For FocusEconomics analysts, thermal coal prices are seen remaining subdued long term amid the global shift away from polluting industries.

“However, in the short-term, winter conditions should keep prices relatively steady,” they said. “A new tariff system in China, which could enter force on January 1, would also support import appetite by lowering raw material prices.”

Analysts polled by the firm project that the price of thermal coal will average US$69.10 in Q4 2020 and the same, US$69.10, in Q4 2021.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.


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