During the energy crisis in 2022, thermal coal traded at much higher prices than ever before, pushed by tight fundamentals, very high prices of the main competing fuel (natural gas), and a war premium. Prices of several thermal coal price markers surpassed the USD 400/t threshold, significantly above former highs. Additionally, for more than half a year, thermal coal prices were above coking coal prices, which was unprecedented. With coal markets easing in 2023, in line with other energy commodities, the coking coal price returned to being higher than that of thermal coal, and the average annual premium increased to USD 120/t, in line with historical levels. Thus, the relationship between different coal prices shows a return to normal conditions in the market, with fluctuations based on fundamentals. For example, an elevated price for met coal between September 2023 and March 2024 was observed because of weak supply from Australia. Likewise, the price of Indonesian low-grade thermal coal had been slightly higher during 2022 and approached moderate territory during 2023 and the first half of 2024, but overall shows lower price volatility.

Following high volatility that sent coal prices soaring to historic highs in all key markets in October 2021, Russia’s invasion of Ukraine further increased prices and volatility. However, 2023 marked a significant downturn in global thermal coal prices because of supply outgrowing demand, easing gas prices, diminishing energy security concerns, and trade flows having adjusted to Russian sanctions following its invasion of Ukraine.

The Amsterdam Rotterdam Antwerp (ARA) thermal coal price marker started its downward trend from late 2022 onwards. The decline in Newcastle free on board (FOB) prices lagged European prices owing to adverse weather conditions in mining and overall tight supply. The difficulty of substituting high quality Australian coal in certain neighbouring markets supported this price level for longer. The South China CFR 5 500 kcal\kg price marker historically correlates with its European and Australian equivalent. However, during the energy crisis the Chinese prices were less affected amid ample domestic supply, stabilising mostly under USD 200\t.

Compared to the preceding period, thermal coal prices remained stable from mid-2023 to mid-2024. The highest prices for thermal coal were observed at Australian ports at around USD 160/t, whereas the lowest were recorded at European ports at USD 93/t. The premium for Newcastle FOB 6 000 kcal/kg came down to USD 20/t in that period compared to an average of about USD 90/t from July 2022 to July 2023.

With European coal-fired energy generation cheaper than gas in the second half of 2023, ARA CIF price markers increased close to USD 150/t in October, overtaking Newcastle FOB. However, this did not last long as prices decreased during the mild winter. Since then, prices have been stable despite supply disruptions in a few exporting countries, including rail collisions in South Africa, rail transport interruptions in Colombia and the collapse of Francis Scott Key Bridge in Baltimore. A short-lived rise in European and Australian thermal coal prices occurred from February 2024, following US sanctions on Russian producers Suek and Mechel, although the increase in gas prices during the same period suggests that other factors were driving the increase rather than the sanctions. While traditionally Europe shows lower demand for thermal coal during its summer season reducing prices, Australian price markers saw an increase in May 2024 when heatwaves in Southeast Asia boosted demand. At the same time, Japan was in negotiations for a term contract of Australian high CV coal which supported Australian prices.

Prices for high CV thermal coal showed moderate volatility in the second half of 2023 and the first half of 2024, as indicated by the standard deviation in prices which was slightly above those observed between 2017 and 2019. This supports the finding that coal markets have re-entered a period of stability unknown for some years.

Historically, thermal coal prices from Australia and South Africa have been generally aligned with Russian prices. This correlation altered, following Russia’s invasion of Ukraine, when numerous western countries enacted sanctions against Russia. Coal markets responded quickly, since the exclusion from international payment system SWIFT and overall uncertainty associated with Russia put a risk premium on Russian coal, resulting in significant discounts compared to coal prices from other origins.

As prices started to recover in the final quarter of 2022, price spreads narrowed, and the Russian discount at its eastern ports vanished There was a reshuffling of trade routes during 2022 in response to sanctions. Volumes which had typically been bought by countries like Japan, found other buyers in that area, causing prices for coal from Russia’s East (Vostochny) to stabilise. Some Russian producers face challenges regarding profitability because of the discounts and lower prices, and the export duty introduced by the Russian government from 1st October 2023, removed on 31st December and reintroduced on 1st March 2024. The relationship between the price of Russian and Australian coal is also a result of quality preferences, location, supply tightness in Australia and war-induced premiums. Prices at Russia’s Black Sea ports exhibit stronger discounts, being on average USD 60/t lower than Newcastle FOB and USD 40/t lower than Richards Bay FOB between mid-2023 and mid-2024. High CV thermal coal price markers for select origins, 2021-2024

During 2022, API2 Spot prices (a price index for coal deliveries to Europe, CIF) experienced significant volatility at an extremely high level. Market tightness together with high-risk premiums associated with Russia’s invasion of Ukraine and subsequent rearrangement of trade routes, caused high levels of uncertainty in the short term. However, coal markets anticipated an easing of this situation, which is evident in future prices taking a downwards trajectory. This backwardation (when spot prices are higher than future prices) could be observed throughout 2022.

With spot prices approaching levels driven by fundamentals in early 2023, backwardation vanished. Instead, the expectation was for future API2 prices to remain rather flat, slightly over USD 100/t. This did not change significantly until June 2024, when the forward curve showed a slight increase over the next two years. In summary, following the tumultuous conditions of recent years, the financial market now shows stability similar to the physical market.

However, given the close connection between coal and gas markets, and the influence of third parties that are not part of the physical market, such as hedge funds and others, any episode of volatility in the gas market will to some extent be mirrored in the coal market.