Coal Nears $100 in Europe as China's Power Demand Draws in Fuel
(Bloomberg) -- Coal prices in Europe are on track to surpass $100 a ton, the highest since 2013 as China’s demand for electricity draws in more cargoes of the dirtiest fossil fuel.
The gains have already pushed up electricity prices from Britain to Italy and, coupled with the highest prices in a decade for carbon emissions, have prompted utilities to burn more natural gas. China is the world’s biggest coal consuming nation. Its demand for the fuel and supply glitches at the main coal hubs across the Atlantic basin have driven up up prices since the end of March.
Coal’s strength in Europe is even more surprising given that governments across the continent are working to close power plants using the fuel, making good on commitments to rein in greenhouse gas pollution. German Chancellor Angela Merkel nominated a panel to advise her when the nation can close all its coal plants, and the U.K. plans to shut the last of its stations that use the fuel by 2025.
The cost of the commodity delivery in Europe in 2019 has risen as much as 10 percent this year and will break through its next psychological barrier of $100 with in a “few weeks,” according to Hans Gunnar Navik, a senior analyst at StormGeo AS. The commodity reached as much as $93.75 a ton on Aug. 30, and the quarterly contract went as high as $99.55 a ton the day before.
“Coal prices could rise on continued trends and support prices for longer,” Navik said. “The most decisive driver though, we find is China’s economic growth and policy on domestic coal production.”
Power demand in the Middle Kingdom may rise by as much as 7.6 percent this year, Bloomberg Intelligence said in a note on Aug. 28. While China is working to scale back the share coal has in its powered generation mix to 34 percent by 2050, its needs for the fuel have been strong in recent years to feed its booming economy.
Coal isn’t alone in benefiting from China’s thirst for energy. The nation is also drawing in more cargoes of liquefied natural gas, diverting those ships away from Europe and raising prices for gas everywhere. That’s lifted the price of LNG in Singapore this summer past levels reached in the winter, when demand is strongest.
“Coal’s strength is driven by China," said Elchin Mammadov a utilities analyst at Bloomberg Intelligence. "We expected that China would intervene in the market and lower prices, but that hasn’t happened.”
The cost of fossil-fuel emissions also is rising, driven by a European Union effort to mop up surplus allowances that built up after the last recession. Carbon is now trading near its strongest in a decade after pushing through 20 euros a ton, continuing a yearlong rally that quintupled the value of the commodity. Higher carbon prices raise the cost of using fossil fuels, especially coal, which produces the most greenhouse gases.
©2018 Bloomberg L.P.