A long-term shift away from coal-fired power generation seemed possible during the lockdowns in 2020, bringing forward power plant closures in several countries and increasing the use of renewable energy. However, post-pandemic fiscal stimulus in developed nations, occurring as lockdown restrictions were eased, brought power demand to new highs and with it, the return of thermal coal as the most reliable source of energy generation.

2021 started with major Chinese cities reporting blackouts as authorities limited power usage, citing a shortage of thermal coal. The reports followed rising trade tensions between Beijing and Canberra, tying coal shortages and blackouts to the unofficial ban China imposed on Australian coal in October 2020. AME’s Newcastle 6,300 spot price started 2021 averaging US$85.09/t in January, followed by an unprecedented rise in prices beginning in March, with the Newcastle 6,300 spot price averaging at US$90.68/t, and ending in October, with the price averaging US$235/t.

Displaying a similar trend, AME Kalimantan 5,900 GAR began the year at US$88.30/t in January. However, the indices dropped to US$71.90/t in May before starting to recover in April, when heavy rain in East and South Kalimantan caused some disruptions to the supply chain. Indonesian prices rose steadily and peaked in October at a record-high average of US$197.58/t.  

This exceptional rise in thermal coal indices was supported by several factors, starting with the shift in trade flows amid China’s ban on Australian coal, which forced Chinese mills to turn to North American markets in an attempt to fill the gap in their imports. Strong demand for power for industrial use in China was combined with a slowdown in local coal production as authorities stepped up safety inspections after a series of accidents.

As a result, prices for FOB Qinhuangdao 5,500kcal/kg coal increased 5.6% on the month to average US$132.7/t in June amid expectations of tighter domestic supply. Newcastle thermal coal hit a high of US$133/t at the end of June on strong power generation demand in North Asia amid a hotter-than-normal summer. In Europe, thermal coal prices soared. The DES ARA Index averaged US$109.5/t in June, surging 52.5% from the previous month’s average of US$71.8/t.

US thermal coal production, which was already in long-term decline, slumped during the first wave of Covid-19 infections and lockdowns. However, rising gas prices encouraged US electricity generators to raise output from thermal coal-fired units, providing a temporary reprieve for the then-beleaguered thermal coal mining sector. In September, high gas prices in the EU and fears of an energy supply crisis pushed European thermal coal indices to new all-time highs.

High trading activity by Indian and Pakistani consumers had a positive impact on South African coal indices, supported by supply restrictions amid issues with the railway line connecting the country’s coal-mining provinces with the port of Richards Bay. South African 5,500 NAR thermal coal spot prices averaged US$131/t in September, an increase of 19.1% month on month.

Thermal coal prices reached historic highs in mid-October, largely driven by high natural gas prices and low inventory levels in China. However, towards the end of October, the growth of wind generation in the renewables market, the requirements of the National Development and Reform Commission of China to reduce domestic coal prices, and the shutdown of businesses in the EU due to the high cost of electricity put pressure on prices for the first time in the year since the rise in prices began.

In the last month of the year, La Niña weather patterns brought damaging floods and severe adverse weather conditions that led to a slight rebound in coal prices. Exports of Australian thermal coal faced disruption after excessive precipitation affected access to mines in New South Wales’ key producing regions. With the heating season at its peak in the northern hemisphere and gas suppliers working at full capacity, coal supply disruptions in top producing countries may have a strong impact on the seaborne market.

Overall, the Newcastle 6,300 spot price averaged around US$137/t in 2021, increasing a drastic 120% year on year. AME Kalimantan 5,900 GAR averaged US$110/t in 2021, up around 105% on the year, and the South African 5,500 NAR thermal coal spot prices averaged US$89.3/t in 2021, up 85.2% from the previous year. With the severity of Australia’s wet season likely to be a key factor impacting supply volumes in key producing regions, AME expects prices to remain elevated into the beginning of 2022.

Imports and Exports

In 2021, net-zero emissions targets regained public attention amid the climate summit in Glasgow, where nations detailed their contributions to the global effort to reach climate goals. All scenarios that meet global carbon emissions targets include a fast decline in coal use. However, the rising global coal supply this year struggled to cover skyrocketing import demand, resulting in an unprecedented energy crisis at the end of the year.

2021 started with strong thermal coal imports into China ahead of the Chinese New Year and high utilisation at domestic suppliers, with Indonesian coal miners benefitting from political tensions between China and its second-largest supplier, Australia. In March, Australia’s thermal coal miners faced significant weather disruption, including heavy rains and floods that shut the world’s largest coal-export harbour, Port Newcastle. More than one metre of rainfall fell over a few days, which caused supply tightening in the Asian market, as the bulk of the port’s exports go to long-term customers in Japan and South Korea.

In June, thermal coal demand growth was driven by a strengthening global GDP and surging power generation demand for industrial and domestic consumption. Power plants rushed to secure adequate fuel supplies as a hot northern hemisphere summer added to demand from the region’s post-Covid-19 industrial revival.

In July, exceptionally hot weather hiked electricity usage, which was simultaneously being pushed up by growing economic activity. Higher electricity usage increased demand for thermal coal imports. A hot summer in the northern hemisphere led several large consuming countries, which had been shifting away from thermal coal, to increase their imports.

To secure supply safety, China’s NDRC authorised more shuttered thermal coal mines to restart production as key policymakers sought to balance progress on the country’s climate goals against still-surging power demand. Meanwhile, Indonesia withdrew the coal export ban for three of the 34 companies suspended after failing to meet their domestic supply obligations earlier in the quarter. The suspension of exports was imposed after the mining companies failed to sell the mandatory 25% of their production to the domestic market during the first half of 2021.

Turkey's environment ministry eased the coal import regulations for the country's power sector by allowing utilities to import coal with higher sulphur content and lower minimum calorific value. Although the changes are not expected to immediately impact utilities’ procurement strategies, the country's import mix could considerably change in the medium term as buyers will have the option to source more competitively-priced coal.

AME expects global export thermal coal supply to reach 963Mt in 2021, as the world continues recovering from the pandemic. Indonesia remained by far the largest-volume exporter of thermal coal in 2021, shipping around 423Mt for the year, up by 4.7% year on year. Australia’s thermal coal export volumes remained stable, reaching 202Mt in 2021 compared to 203Mt delivered in 2020. However, Australia’s export volume is expected to increase by around 8.4% year on year in 2022.

Closures and Production Cuts

New Hope Corporation holds a 100% interest in the New Acland open-cut thermal coal mine located in the Bowen Basin in Queensland, Australia. The mine transitioned to care and maintenance at the end of 2021 while waiting for the Queensland Land Court of Australia to decide on the approval of the stage 3 expansion of the mine, potentially at the beginning of 2022. New Acland has generally produced between 4-5Mtpa of thermal coal for both the export and domestic markets.

However, production volumes have recently declined as coal reserves at the existing coal mine are close to depletion.

With the approval of the stage 3 expansion, New Acland’s production capacity will increase to 7.5Mtpa and its mine life will be extended to 2031. The Queensland Land Court has conditionally approved the expansion, and now the state government will decide whether to grant the mining lease required for the exploitation of the new mining area and a licence to use a water resource.

Mergers and Acquisitions

In 2021, Glencore became the sole owner of the Cerrejón thermal coal mine in Colombia by buying out partners BHP and Anglo American. The deal replaces coal output lost when Glencore decided in February to mothball production at Prodeco, another Colombian coal mine. Cerrejón is one of the world’s largest surface mining operations, producing high-quality thermal coal for the export market.

Similarly, after completing the acquisition of the 12.5% stake previously owned by Itochu in June, Glencore took over a 100% interest in the Rolleston coal mine with a new agreement to purchase the remaining 12.5% interest from Sumitomo. Rolleston is Glencore’s largest coal mine in Australia, producing on average ~14Mtpa for the export and domestic markets. Rolleston has environmental approval to continue mining beyond 2040.