Coal prices blow the roof off!
The invasion of Ukraine by Russia has shot the price of thermal coal to record highs. Why is this happening?
Sanctions on Russia include bans on Russian coal. Russia supplies a whopping 70% of Europe’s thermal coal imports. Therefore, a drop in supply and a projected sustained drop in supply has blown the roof off thermal coal prices. It is unlikely sanctions will be lifted on Russia any time soon.
Unfortunately for Australia, most thermal coal exports are locked into long-term contracts at set prices and therefore can’t take advantage of the astronomical price of coal. Luckily, some coal contracts include escalation clauses, offering exposure to favourable prices.
The big question for coal produces in Australia is whether the price surge will cause new investment in coal supply or an even greater push away from coal to renewables. In a simple market, increased demand triggers producers to ramp up capacity to match demand. In reality, our taste for dirty energy has soured, and a high thermal coal price will sway us towards renewables.