In a recent online column, Patrick Collinson, money and personal finance editor of The Guardian, a daily newspaper in the UK, gave 11 tips on how to make money in 2011. At number four, he recommends opening a coal mine.
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His point is simple but important: with China adding about 51 GW of coal-fired capacity last year, India becoming a large net importer, and stocks in Europe running lower after a vicious cold snap during November and December, demand is likely to outstrip supply this year. Underinvestment during the financial crash also means that new supplies will not be coming online anytime soon.
This structural supply/demand imbalance has been exacerbated by recent events in Australia. Devastating floods in Queensland, the largest coal producing state in Australia and the largest met coal exporting region in the world, have crippled its mining industry. More than 40 mines have suspended operations, hitting an estimated 47.3 million t of annual production. The resulting fall in Australian exports has pushed up prices, having a particular impact on the met coal market. Analysts estimate that up to 5% of met coal production has been removed from world markets this year.
Supply disruptions have not, however, been limited to Australia. Last year, heavy rain and flooding also hit exports from Colombia, Indonesia and South Africa, where delays at Richards Bay are also causing problems. Meanwhile, cold weather is delaying loading at most Russian ports as coal arrives frozen in the rail wagons.
Coal prices thus look likely to remain high through the first half of this year and beyond. Wood Mackenzie, a consultancy, is talking about spot prices of US$ 400/t for hard coking coal as the full impact of the Australian floods hits home; thermal coal will rise less dramatically, but will still increase.
An interesting start, then, to what should be an exciting year for the coal industry. Amid all of this, World Coal will celebrate the 20th anniversary of our coverage of this industry, while this month sees a new foray into the digital world as we launch our long-standing CBM Review as a monthly e-newsletter – sign up now at https://www.energyglobal.com.