Coal enthusiasts might want to hold their horses if they think that the recent support for coal prices is a sign that things are picking up for the sector.

But wait, surely you are wrong, the coal supporter might say, after all coking coal futures on the Singapore Exchange are up 17.8 per cent in 2020, while the weekly price index for thermal coal is virtually unchanged from what it was at the end of 2019.

The answer might simply be one of timing rather than any real long-term demand growth, particularly for thermal coal.

Coking coal is used primarily to make steel and its fortunes are invariably tied to iron ore, which still enjoys fairly high prices despite the impact of the COVID-19 pandemic.

Supply has been restricted by a combination of Mongolia closing its borders in February coupled with seasonal wet weather in Queensland, which neatly explains the rise in coking coal prices.

While Mongolia has since reopened its border with China, the ongoing weather disruptions in Queensland and hopes that Beijing will soon announce stimulus measures to boost China’s economy, which are all but certain to include capital spending led by infrastructure investment, have kept coking coal prices lively.

However, the future for thermal coal — used for power generation — is considerably bleaker.

With Chinese mines starting to return to normal, the demand for imported fuel may fall.

The Jakarta Post reported that Indonesia’s Energy and Mineral Resources Ministry was considering lowering the country’s coal production target this year due to a fall in Chinese demand.

Pointing to thermal coal’s headaches, Australia’s Department of Industry, Science, Energy and Resources noted in its latest Resources and Energy Quarterly that India was expecting to reduce its thermal coal imports by 2.2 per cent per annum until 2025 as it ramped up domestic production.

The Institute for Energy Economics and Financial Analysis (IEEFA) added that Vietnam could no longer be counted on as a source of growth for Australian thermal coal.

It noted that earlier this month, Vietnam’s National Steering Committee for Power Development advised the government that the nation’s coal power ambition should be significantly scaled down and that 15 gigawatts of planned power projects be abandoned due to the difficulty in securing finance.

South Korea’s ruling party has also proposed ceasing all new coal related financing while two of China’s largest development banks have also slashed power generation financing.

READ: The great coal debate of 2020: Is the industry going the way of the dodo?

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