Coal Industry is in beleaguer situation as major economies are taking a step towards the zero-emission policy and adopting measures to curb the environmental pollution, on account of Euro-6 emission standards. A rapid transformation in the global economies towards the source of renewable energy is putting pressure on coal prices.
Coal prices plunged in the global market, with Coal Futures (CME) on a downward trend this year. The prices fell from the level of $77.05 (Day’s high on 21st January 2019) to $69.05 (Day’s low on 14th March) initially before further plunging to the level of $65.05 (Day’s low on 21st March). The prices are currently hovering at $67.05.
In the recent scenario in the coal market, China which was among the top importer of Australian Coal in 2018, has increased stringency over the coal import. The action of China to impose a more significant restriction on coal imports was in line with its raised stance to curb environmental pollution and its high domestic coal market.
Out of various types of coal, China is particularly stringent on thermal coal, which is generally used for power generation. The harmful effects of burning thermal coal are majorly evident in the market, and the retail investors are turning their back from it, which in turn is exerting pressure on coal prices.
China previously imposed restrictions on Australian Coking coal as well.
Apart from China, many other countries are putting either ban or decreasing coal imports. Recently, a court ruling in Australia also denied permission to major coal miners to commence new operations, amid coal mining harmful effects on the surrounding flora and fauna.
On the Energy front, energy generation from coal is estimated to mark a decline day-by-day, as per the U.S. Energy Information Administration. The share of total utility-scale electricity generation from coal will average down on a yearly basis and will average around just 24% in 2020, as compared to 28% in 2018.
Another significant development in the coal industry was the withdrawal decision of behemoth miner “Glencore” from the coal business, which tracked the footprints of Rio Tinto (ASX: RIO). Rio started dismantling its coal business in late 2017.
While the retail investors are turning their back on coal, institutions are still backing it, as many institutions believe that China’s restrictions on coal imports are just in order to promote the domestic market and the most significant consumer is still likely to import the Australian coal.
The backing of institutions on the coal could be in the wake of high-steel prices in the domestic market. Thermal coal might have seen a shunning due to environmental concerns, but the steady steel market could support the coking coal, which is used as a raw material in the steel production along with iron ore.
In the absence of China, the Australian coal is now getting diverted to the Indian and Vietnam markets. Developing economies such as India are still relying on thermal coal to meet the increasing energy demand, and future developments should be watched closely before jumping on to any conclusion about the future of the coal market.
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