Fluctuating demand drives coal prices down – creates temptation

Unfortunately you cannot change the economic laws of supply and demand, and as less coal is needed to burn in electricity generation, so does the price come down. Of course India and China have realized that it is even cheaper to burn as much of their own coal as possible, so that in turn has left all other sources of coal at even lower prices, as both countries have tried to accelerate mining.

The net result will be a backlash against renewables among coal committed countries, especially those in the same regions – Indonesia, Malaysia, Vietnam, Thailand, the Philippines, Australia, and even as far afield as the Ukraine, but it will also inevitably lead to coal mines closing down, once they run out of money.

It will be interesting to see India’s import statistics for this summer after the monsoon season, as back in May its coal imports from Indonesia rose 3%.

Indonesia coal exports to China have been up and down, sometimes way below previous years and then there is bulk buying to make up the difference.

The Financial Times reports that all of Asia is experiencing coal prices at their lowest level for three years. The biggest problem for renewables is inside China and India – if they continue to accelerate the burning of their own coal assets, retaining coal jobs, will this in turn tempt them to begin buying cheap coal assets around the world once home supplies run out and there is a glut internationally.

This is the thing about energy, it is a genuine market. Renewables are only cheaper than coal for a time, and the only thing keeping the coal plant prices high are carbon credits, where such systems are in place. The biggest worry is that both China and India miss their 2030 carbon emissions targets because of the financial temptation of keeping really cheap coal burning for just that little bit longer. The price of Australian coal has fallen from $120 a ton last summer, to $61 today.

Coal’s weakness is likely to hit the earnings of many coal mining concerns including Glencore, Anglo American and BHP Billiton, which has promised it will get itself off coal, but it can only do so much overnight.