Russell: War in Iran gives a small boost to thermal coking coal. Further gains are possible.
The price of seaborne thermal coal in Asia has risen in response to the U.S.-Israeli war against Iran. However, the gains have been modest and are nowhere near as large as those seen in the aftermath of Russia's invasion?of Ukraine.
The Strait of Hormuz has effectively closed 20% of the global supply of super-chilled fuel.
The price of seaborne thermal coal increased by?as much as?78% after the Russian invasion of Ukraine, in February 2022. There was little disruption in supply; the main effect was a rerouting of flow as Western buyers avoided Russian cargoes.
China has seen a significant drop in Asia's LNG imports since the beginning of the Iran War. The country has reduced arrivals, and instead turned to its own natural gas and pipelines, as well as coal.
The LNG supply has been sufficient to meet the demand of importers from other major Asian countries.
Thermal coal has become more competitive as the price of LNG spot and LNG oil-linked long term is rising.
Three types of thermal coal are traded in Asia: high-quality Australian is mainly purchased by Japan, South Korea and Taiwan; mid-quality Australian or Indonesian is primarily bought by China and India; and lower-grade Indonesian is favored by both China and India.
The highest-quality Australian coal has performed the best since the beginning of the Iran conflict. On May 1, the benchmark weekly fuel index from Newcastle Port ended at $130.81 per metric ton, up 12.6% compared to the week before the Iran War.
Argus, a commodity reporting agency, assessed mid-quality Australian coal as having an energy content of 5500 kilocalories/kg (kcal/kg). This is up 11.7% from the beginning of the Iran War.
Last week, Indonesian coal with a?4,200kcal/kg energy content was valued at $61.82 per ton. This is an increase of 11.6% from February 27.
The data show that higher-grade fuels have modestly outperformed mid- and low-quality coals. This is because Japan and South Korea, the only two major economies in Asia capable of switching between coal and LNG for electricity generation.
The import data indicates that neither country has yet to make a meaningful switch between fossil fuels.
Fuel Switching
According to analysts DBX Commodities Japan's thermal coal imports were 7.89 millions tons in April. This is down from 9.10 in March but above the 7.69 in the same month of 2025.
DBX data shows that South Korea imported 5.70 million tonnes in April, down slightly from 5.81 millions in March, but still above the 4.12 million tons imported in April of last year.
But, imports from both Japan and South Korea in April were still well below the average for the past five years. This shows that, while the demand has increased slightly over the previous year, it is still modest compared to recent years.
It is not clear whether Japan and South Korea are going to switch more coal in the coming months.
The current price of thermal coal and LNG is a strong financial incentive. According to LSEG, it is cheaper for Japan to use coal if the LNG price exceeds $10.24 for a million British thermal unit (mmBtu) while the price for South Korea is $10.45.
Spot LNG delivery to North Asia
LSEG data shows that last week the price for this LNG was $10.06/mmBtu, which is still cheaper than coal.
Brent futures are up in recent days, as crude markets become more concerned about the Strait of Hormuz?not reopening any time soon. They ended at $114.44 a bar on Monday,?up 32% from the post-war bottom of $86.09 a barrel, on April 17.
Using current Brent?futures prices, LSEG's data indicates that the price for Brent-linked LNG will be $12.73/mmBtu in Japan by the start of July. This is high enough to encourage the switch from gas to coal.
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These are the views of a columnist, who is also an author.
(source: Reuters)
