The Russia-Ukraine war has had a domino effect on global coal demand that could significantly benefit coal exporting countries such as Australia. With Russia, which is one of the world’s largest coal suppliers, essentially booted out of the global coal market, Australia has seen its coal prices soar.
Before Russia invaded Ukraine, many European countries had began shutting down their coal-fired power plants in favor of cleaner energy sources. In the wake of Russia’s unprovoked invasion, plenty of countries condemned the attack and urged Russia to cease its war effort and withdraw from Ukraine.
Furthermore, western countries issued a series of economic sanctions against the country, such as cutting down on Russian energy imports to cripple its economy and halt Russia’s unprovoked invasion.
Russia, which is one of the top energy producers in the country, retaliated to these sanctions by cutting gas exports to the rest of Europe, plunging the region into an even deeper energy crisis. European countries were forced to fire up their coal power plants for energy generation despite pledging to move away from coal. And, although some countries turned to cheap Russian coal as a stopgap measure, an impending ban on coal from Russia means they will have to find other alternatives fast.
Australia, currently the fifth-largest producer and second-largest exporter of coal on the planet, has stepped in to fill the shoes left by Russia. Data compiled by OPIS shows that recently spot physical coal at the Newcastle port in Australia was priced at an all-time high of $436.71 per ton. This is almost three times more that the spot physical coal prices at the same time last year.
In addition, ICE Futures Europe reported a 5% price jump to $463.75 a ton for October Newcastle futures, the highest prices have been since January 2016. And benchmark coal prices in Europe have also soared to record highs due to uncertainty over Russian gas exports and predictions for increased coal demand.
High prices have also been fueled by expectations of weather disruptions at key Australia coal mines in the wake of a forecast that predicted heavy La Nina rains in late 2022 that have increased fears of a supply crunch. A note from Morgran Stanley analysts revealed that any “severe disruptions” to coal shipments from Australia could cause the price of high-calorific coal to skyrocket to untold highs. Heavy La Nina rains have impacted Australian coal mines in the past, with coal output from Queensland and New South Wales states being reduced by 20% to 30% during a 2010–2011 severe weather event.
The high prices Australian coal is enjoying on the world market are also benefiting other industry players such as Alliance Resource Partners L.P. (NASDAQ: ARLP) since buyers are scrambling to obtain coal from every source available before winter sets in and energy use hikes.
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