03-08-2018

Phew! Asia, Europe heatwave pushes Australia coal prices to 6-year high

Australian thermal coal prices have hit fresh six-year highs as a heatwave across the northern hemisphere has triggered a spike in demand for coal-fired power to help keep air conditioners cranking out cool blasts.

Spot thermal coal cargo prices from Australia’s Newcastle terminal last settled at $121.75 per tonne, their highest since February 2012 and up by a third from their 2018 low, set in April.

“Extreme heat in Asia and Europe is pushing power demand for industrial and also residential cooling above what’s normal for this time of the year,” said one utility trader, declining to be named as he was not authorised to talk about commercial matters.

“Coal has reacted stronger than natural gas because more spare coal capacity has been activated,” he said.

Temperatures in key coal-consuming regions of North Asia and Europe hit records in July and the heat that has continued into August is set to persist, meteorological services said.

Weather analyst Ed Whalen said “widespread warmth between 1-4 degrees Celsius above normal was observed across much of South Central, East, and Northeast China over the past seven days”. Hot weather would this week “dominate most of China once again,” he added.

In Japan, the unusual heatwave last week pushed temperatures in Tokyo above 41 degrees Celsius.

Beyond maximising coal-burning, Japanese utilities have cranked up old oil-fired power stations to cope with the spike in power demand, which has also sent the country’s wholesale electricity prices to record highs.

Extreme heat has also gripped large parts of Europe, with temperatures in Spain and Portugal exceeding 40 degrees Celsius and even Scandinavia seeing temperatures of more than 30 degrees.

The hot weather has also pushed up river temperatures across the region, forcing several nuclear power stations that use the waters for reactor cooling to reduce output.

European utilities, especially in Germany, have turned to coal-fired power stations to fill some of that gap, generation data in Thomson Reuters Eikon showed.

Germany and Europe are not major buyers of Australian coal, but their increased demand is still being felt as a ripple effect amid a globally tighter coal market, traders said.

Overall, thermal coal prices have this year have outperformed other fossil fuels like crude oil and liquefied natural gas, as the strong demand comes amid stagnant output while availablility in oil and gas has been rising.

Source: Reuters

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