Coal Prices Soar Amid Inventory Shortages

Coal Supply Shortages Drive Prices to Record Highs

Fuel prices are soaring to record highs amid coal supply shortages which are expected to last through the winter at the very least. These trends are prompting concerns that countries across the globe could face fuel shortages in the coming months. This is already happening in China, where declining supplies of fuel and skyrocketing prices have led to energy shortfalls. The shortages are so severe that some industries are idling production and some cities are shutting off traffic lights.

As it stands, Australia’s Newcastle thermal coal, which is a global benchmark, is trading around $202 per metric ton. That is three times more than its price at the end of 2019. At the same time, global production of coal is down 5% from pre-COVID-19 levels.

Demand Outstripping Supply

The supply of coal has not kept up with demand across the globe this year. In 2020, a pandemic slump drove coal production down 5%. Now, producers are having trouble increasing supply as quickly as demand is increasing. Increasing coal production can take as long as nine months. Semirara Mining & Power, the Philippines’ largest coal producer, is operating at maximum capacity. That is particularly problematic for China, since most of Semirara Mining’s exports go to Beijing.

China, the world’s largest coal consumer, is at the center of the current coal shortages. As China moved to meet its emissions targets, coal inventories fell. At the same time, China stopped imports of coal from Australia due to diplomatic tensions. Now, Australia is courting new buyers and China is searching for coal in Africa, Europe, and Latin America.

The World Still Needs Coal

Despite the world’s commitment to move away from coal because of its impact on the environment, rising coal prices and supply shortages are underscoring the world’s reliance on coal. Prices of coal tend to depend more on economic growth than on government initiatives to curb emissions. During the pandemic, demand for coal fell across the world. This year, demand for coal is on track to meet or beat pre-pandemic levels.

Companies across the globe may be pouring billions of dollars into slashing their carbon footprint, but the world is still very reliant on coal. With the supply/demand imbalance likely to remain throughout the winter, it will be interesting to see how countries around the world respond.

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