Coal consumption expected to return to record levels for 2013: International Energy Agency

Coal prices are on the rise, and global coal consumption is expected to return to the record levels it reached in nearly 10 years as the global energy supply crisis continues.

Analysts say that while investors in coal stocks spend a field day thanks to rising coal prices, restrictions on carbon emissions are easing as markets and governments scramble to hoard conventional energy supplies amid bottlenecks caused by the Ukraine war.

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

“Who would have thought dirty coal would be the best performing stock last fiscal year,” O’Connor said. “So far this fiscal year is the best performing sector.”

“Looking ahead next year during the northern winter with gas prices in Europe and the availability of gas supplies, countries are going back to coal.

And the show [of coal] narrow. why? Because no one will be left on capacity building and markets are tight given the weather and Covid. So this market will remain higher for a longer period, possibly in 2023.

At the heart of the ongoing rise in coal demand is a gas shortage as the European Union moves to reduce Russian gas use – without a gas ban – while Russia responds by cutting off supplies to the continent.

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The price of thermal coal used for power generation has risen about 170% since late last year, and has risen sharply after the start of the Ukraine war.

In contrast, the other mainly traded coal, the steelmaking component coke, is trading lower. driven by different dynamics, Silent economic growth in China Steel production and, consequently, the demand for coke is cooled.

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

“The global total will match the annual record set in 2013, and demand for coal next year is likely to increase to a new all-time high,” said the International Energy Agency’s coal market report.

“This sharp rise has contributed significantly to the largest-ever annual increase in global energy-related carbon dioxide emissions in absolute terms, placing it at the highest level in history,” the IEA said.

Worldwide coal consumption has already rebounded by about 6% in 2021 when the global economy recovered from the initial shock of the Covid pandemic, the International Energy Agency said.

At the heart of the ongoing rise in coal demand is a gas shortage as the European Union moves to reduce Russian gas use – without a gas ban – while Russia responds by cutting off supplies to the continent.

So coal consumption in the European Union is expected to rise by 7% in 2022 on top of last year’s jump of 14%, according to the International Energy Agency.

“This is driven by demand from the electricity sector as coal is increasingly being used to replace gas that is in short supply and has seen significant price hikes in the wake of the Russian invasion of Ukraine,” she added.

“Many EU countries are working to extend the life of coal plants due to close, reopen closed plants or raise the cap on their working hours to reduce gas consumption.”

Meanwhile, the Russian coal boycott will add more upward pressure on coal prices, the agency said.

“Europe’s worst fears materialized this week after Russia reduced flows through the Nord Stream pipeline to 20% of capacity. Gas stocks may not reach levels. High enough to get through the winterANZ Research commodity analysts Daniel Hines and Sony Kumari said in a note on Friday.

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

The global gas market, including the Asia Pacific region, is feeling the pain.

Japan’s Nippon Steel on Wednesday signed an agreement with mining and trading giant Glencore to supply thermal coal at $375 a ton, the highest price a Japanese company has ever paid for the commodity, according to Bloomberg.

In general, increasing energy costs continue to contribute to this global inflationforcing central banks to continue monetary tightening.

The The Federal Reserve raised benchmark interest rates by 75 basis points On Wednesday, it is the latest in a series of interest rate increases designed to tame inflation.