One worrying sign for the global economy: Thermal coal — burnt in power stations to generate electricity — has slumped into bear market territory, with benchmark prices around the world dropping to multiyear lows before recovering.
The downturn started in Europe where falling industrial output in Germany, unseasonably warm weather and a glut of liquefied natural gas shipments from Asia hit natural gas prices and ultimately demand for coal. The fossil fuel is a key source of income for miners including Glencore, Peabody Energy and Whitehaven Coal.
Thermal coal prices in Europe, which started the year at about $85 a tonne, dropped to close to $50 last week before rallying to roughly $58.
High-grade Australian thermal coal, sold mainly to utility companies in Japan and South Korea, has dived 27 per cent since the start of the year to a near-two year low of $73.37 a tonne, according to price assessments by Argus Media. Futures prices have since recovered to more than $86 a tonne. South Africa thermal coal is down 28 per cent.
Shipments of Australia coal have been facing lengthy delays at Chinese ports amid tensions between Beijing and Canberra over Australia’s blocking of Chinese telecoms company Huawei taking part in the country’s 5G network.
However, the broad-based nature of the price rout points to it being a demand problem in Europe, according to BMO Capital Markets. Total volumes of coal burnt across the region fell to their lowest level in five years last month.
The collapse in prices comes shortly after Glencore, the world’s biggest exporter of seaborne thermal coal, settled key contract talks with Japanese utility companies.
The spring discussions between Glencore and the utilities, which are typically led by Tohoku Electric Power, are the most important in the coal calendar, effectively setting the price for the commodity in the giant Asian market. For the year ahead, the two sides have settled on a price of almost $95 a tonne.