Russell: Quality is important as coal prices rise amid LNG spikes on Iran War
The rise in spot prices of liquefied gas (LNG), but only in higher-quality grades, has led to a price increase for seaborne thermal coal.
Last week, the spot price of LNG in Asia nearly doubled as the market digested a loss of almost 20% of global supply of super-chilled fuel after U.S. and Israeli attacks on Iran effectively closed the Strait of Hormuz. This cut off Qatar's LNG.
North Asia LNG delivery
Gas-to-coal switchovers in Japan and South Korea are possible due to the surge in LNG prices. These two Asian countries have the greatest ability to arbitrage fuels for electricity generation.
Japan and South Korea buy Australian thermal coal that has an energy content of 6,000 kilocalories/kg. The index for this fuel, as measured by the commodity reporting agency Argus in the week ending March 6, rose to $129.62 per metric ton.
It was a record high for a period of 14 months and was up by?11.6% compared to the week ending February 27. This was the day that the U.S. launched an air campaign against Iran. Iran responded with missiles and drones fired at targets in the Persian Gulf.
EUROPE GAINS
The price of thermal coal headed to Europe (the other region where switching from gas to coal can occur) also increased. McCloskey assessed 6,000 kcal/kg South African coal at Richards Bay Port on Monday for $113.00 per ton, an increase of 14.3% over $98.90 from?February 27,
The gains in seaborne coal prices are much smaller than the increase in spot LNG.
It is possible that the thermal coal supply is not threatened by major exporters like?Australian, South Africa and Colombia.
The economics of switching from gas to coal are attractive at the moment, but the lack of coal-fired power plants, particularly in Europe, limits the ability to make this switch.
According to the Global Energy Monitor, Spain, for example, retired 13.18 Gigawatts of coal-fired power from 2000 to 2025, without adding any additional plants. Germany, on the other hand, shut down 33.57GW while adding only 13.69GW.
In the last three years, Japan has retired nearly 1,200 megawatts of coal-fired power without adding new units.
South Korea's coal-fired power plants have increased in capacity over the past few years. The government has committed to a phase-out plan that will see 40 out of 61 units closed by 2040.
If LNG prices continue to rise, the longer-term strategy does not preclude a short-term switch to coal.
Analysts at DBX Commodities estimate that seaborne thermal coal imported by the European Union will increase to 2,17 million tons from 2.01 millions in February.
DBX estimates that Japan's imports of seaborne coal in March will be 9.52 million tonnes, down from 10.18 millions in February, but up from 9.22 in March last year. South Korea is expected to arrive at 6.12 in march, up from 5.05 in the same month 2025.
CHINA AND INDIA
The two biggest coal importers in the world, China and India, do not usually switch from gas to coal for power generation.
Gas-fired electricity generation in China is only 3%, whereas coal accounts for just over 60%. In India, coal and natural gas account for around 70% of the electricity generated.
High LNG prices are likely to curb coal imports from both China and India. However, rising domestic production is expected to compensate.
The prices of coal grades that are preferred by China and India can show this dynamic.
According to Argus, Australian coal with a 5,500 kcal/kg energy content, which is popular among Chinese utilities and Indian industrial consumers such as sponge iron 'producers', increased a modest 1,4% during the week ending March 6, to $87.87 a tonne.
The price of Indonesian coal that has an energy content greater than 4,200 kcal/kg rose 5.1%, to $58.21 per ton during the week ending March 6. However, this is still below the gains for the higher-quality grades.
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The author is a columnist at. (Editing by Muralikumar Anantharaman).
(source: Reuters)
