The global shift to ESG business practices and the clean energy transition is big business, and coal solutions aren’t included.

But despite various headwinds, prices for thermal coal have been on a bit of a tear lately.

From post-COVID lows of less than US$50/tonne, spot prices for thermal coal at Newcastle port (free on board, where the buyer assumes liability) have climbed back above US$120/t.

That’s a nine-year high, according to CBA commodity analyst Vivek Dhar.

And while things may cool off in the second half of this year, “elevated prices may remain in the near-term”, Dhar said.

Thermal coal market dynamics

For Australian thermal coal exporters, those prices are fairly robust given the highly publicised ban placed by China on domestic coal imports.

China previously accounted for around 20-25% of Australia’s thermal coal exports. But in its absence, India has stepped up to the plate, Dhar said.

China’s preference was for lower-energy thermal coal — around 5,500 calorific units per kilogram (cal/kg).

For comparison, spot prices at the Newcastle port are measured at 6,000 cal/kg.

The low-energy stuff is also cheaper, and “India has emerged as a key buyer of Australia’s lower-energy coal in China’s absence, by taking advantage of lower prices for 5500kcal/kg coal from Australia”, Dhar said.

But in terms of market structure for thermal coal, a more important development took place in the form of a new agreement between global commodities giant Glencore, and Japanese utility Tohoku Electric.

From July onwards, the two companies have agreed to a revised annual contract price of US$109.97/t (FOB Newcastle, 6000kcal/kg).

That marks a robust 60% increase last year’s mid-pandemic price of US$68.75/t, Dhar said.

In addition, “this reference price is typically adopted by other coal producers in other contracts with other utilities”.

In terms of other near-term catalysts, Dhar flagged the unplanned outage of the Shin Kore 4 nuclear plant in South Korea.

The outage is expected to last for around a month which has “boosted thermal coal demand even higher”, Dhar said.

Other supply-side hold ups are taking place in Colombia where a blockade recently halted output at the Cerrejon coal mine, along with Russia and South Africa where infrastructure upgrades are expected to crimp near-term supply.

In last week’s edition of MoneyTalks, Stockhead’s Nick Sundich highlighted that ASX thermal coal plays haven’t bounced back as fast as other commodity sectors amid the broader economic rebound.

But while supply/demand factors may fluctuate, major contract pricing is indicative of thermal coal prices holding above US$100/t — a level they hadn’t reached since early 2019.