Coal consumption set to return to 2013 record levels, IEA says

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Coal prices are soaring and global coal consumption is expected to return to record levels reached nearly 10 years ago as the global energy supply crisis continues.

As investors in coal stocks go wild on high coal prices, reducing carbon emissions takes a back seat as markets and governments scramble to source traditional energy in the amid bottlenecks caused by the war in Ukraine, analysts said.

Worse, slowing investment in new coal-fired power facilities has further tightened coal supplies, Shaw and Partners senior analyst Peter O’Connor told CNBC’s “Squawk Box Asia” on Friday.

“Who would have thought dirty coal would have been the best performing stocks in the last fiscal year. So far this fiscal year, it’s also been the best performing sector,” O’Connor said.

“And looking at the year ahead during the Nordic winter with gas prices in Europe and the availability of gas supply, countries are turning to coal.

“And provide [of coal] is tight. Why? Because no one is building capacity and markets will remain tight given the weather and Covid. This market will therefore remain higher for longer, probably until calendar year 2023.”

At the heart of the continued rise in demand for coal is gas shortages as the European Union moves to reduce the use of Russian gas – stopping ahead of a gas ban – while Russia reacts by cutting off the mainland’s supply.

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The price of thermal coal used for power generation has risen by around 170% since the end of last year, rising sharply after the start of the war in Ukraine.

In contrast, the other most traded coal, coking coal, a steel ingredient, is trading lower. Driven by different dynamics, China’s weak economic growth is dampening steel production and, by extension, demand for coking coal.

The International Energy Agency released a new report on Wednesday warning that global coal consumption is expected to rise 0.7% in 2022 to match the record set in 2013, assuming China’s economy recovers as expected in second semester.

“The global total would match the annual record set in 2013, and coal demand is expected to rise further next year to a new record high,” the IEA Coal Market Update said.

“This sharp increase contributed significantly to the largest ever annual increase in global energy-related CO2 emissions in absolute terms, placing them at their highest level in history,” the IEA said.

Global coal consumption had already rebounded by around 6% in 2021 when the global economy recovered from the initial shock of the Covid pandemic, the IEA said.

At the heart of the continued rise in demand for coal is gas shortages as the European Union moves to reduce the use of Russian gas – stopping ahead of a gas ban – while Russia reacts by cutting off the mainland’s supply.

Coal consumption in the EU is therefore expected to increase by 7% in 2022 on top of last year’s 14% jump, according to the IEA.

“This is driven by demand from the electricity sector where coal is increasingly being used to replace gas, which is scarce and has seen huge price spikes after Russia invaded Ukraine. “, did he declare.

“Several EU countries are extending the life of coal-fired power plants scheduled for closure, reopening closed plants or increasing their operating hour caps to reduce gas consumption.”

At the same time, Russian coal boycotts are adding further upward pressure on coal prices, the agency said.

“Europe’s worst fears materialized this week after Russia cut flows through the Nord Stream gas pipeline to 20% capacity. Gas stocks may not reach the levels high enough to overwinter“ANZ Research commodities analysts Daniel Hynes and Soni Kumari said Friday.

“As Europe’s spare import capacity is limited, it is likely to compete aggressively for LNG shipments.”

The global gas market, including Asia-Pacific, is suffering.

On Wednesday, Japan’s Nippon Steel Corporation signed a deal with mining and trading giant Glencore for a supply of thermal coal at $375 a ton, the highest price a Japanese company has paid for the product, according to Bloomberg.

All in all, soaring energy prices continue to contribute to global inflation, forcing central banks to continue their monetary tightening.

The Federal Reserve raised its benchmark interest rates by 75 basis points on Wednesday, the latest in a series of rate hikes aimed at tackling inflation.

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