THERMAL coal prices are trading near a one-year high, with Richards Bay coal futures reaching $131.40/t this week as tighter supply, stronger Asian demand and high gas prices support the market.
South African coal miner Thungela Resources was among the JSE’s strongest performers on this week closing just over 13% higher, while Exxaro Resources, which has less exposure to export markets, gaining nearly 4%. Thungela has now risen about 24% over the past month and almost 98% in the last year.
API4, the benchmark for 6,000kcal/kg coal exported from Richards Bay, has strengthened in recent weeks thanks to several supportive factors.
Analysts at Swiss bank UBS said in a note that seasonal demand, supply constraints and higher gas prices have been supporting thermal coal markets, with prices likely to remain firm in the short term.
In China, coal stocks at power producers and ports are below normal levels, while mine supply is still constrained following safety inspections after an accident in May. Chinese domestic coal prices have risen above 1,000 yuan/t from 818 yuan/t in July, according to UBS.
India is also supportive of the current price environment. Coal-fired power generation rose 13% year on year in September as activity picked up after the monsoon and weak hydroelectric output increased reliance on coal. Inventories are also below normal levels, UBS said.
That demand is already being felt in South African coal markets. S&P Global said last week that buying from India was underpinning Richards Bay prices, with both power producers and industrial users looking to import coal because domestic supplies were either scarce or expensive.
Supply from Indonesia, the world’s biggest thermal coal exporter, has meanwhile been disrupted by low river levels, which have restricted barging, as well as fires and higher domestic requirements. UBS said the start of the wet season this month could allow more stockpiled coal to reach the export market.
Higher gas prices have added another layer of support. UBS said European TTF gas had risen to €89/MWh, while Asian liquefied natural gas prices had reached $29 per million British thermal units, their highest level since 2022.
The rise partly reflects Middle East supply disruption and low inventories. Higher gas prices can also encourage utilities able to switch fuels to burn more coal.
Bullish on coal
Thungela referred Miningmx to market commentary given with its interim results in August. At the time, the company said it remained positive on coal over the medium to longer term but was cautious about the near-term outlook because of competing forces in the market.
CFO Deon Smith said Thungela was mindful of low European gas storage levels, uncertainty around the Strait of Hormuz and wider geopolitical risks to energy supply.
“Everybody on this side of the line are coal bulls,” Smith said. “We do believe in the medium- to longer-term fundamentals of coal.”
But increased domestic coal supply in China and India, together with a greater focus on buying locally, meant the outlook was not straightforward.
“There are a couple of realisations that it’s not a one-way street,” he said.
Smith also pointed to lower hydroelectric generation, safety-related constraints on coal supply and the prospect of stronger Indian demand after the monsoon as supportive factors.
Even so, he said those factors had not yet been fully reflected in forward coal prices at the time.
“We have not seen these factors play properly into the forward curve yet,” Smith said. “That’s why our commentary remains fairly modest at this point.”
Thungela is particularly exposed to movements in seaborne thermal coal prices through its South African export operations, where sales are closely linked to Richards Bay prices, as well as its Ensham mine in Australia.
Exxaro also benefits from stronger export coal prices, although less directly than Thungela. Much of its coal is sold into the domestic market, including to Eskom, while the group also has exposure to renewable energy and iron ore through its stake in Sishen Iron Ore Company.