Global coal prices rose sharply on Tuesday but oil prices fell as the EU left us a little confused about its latest round of sanctions against Russia.
While Brussels said a block on Russian coal exports will be part of an upcoming fifth sanctions package that is currently being discussed by EU member states, there was no mention of oil and gas exports to Europe from Russia being included in the package.
As a result oil prices fell but the price of thermal coal rose with the May ICE Newcastle thermal coal futures price jumping more than 8% to $US280 a tonne. That saw prices all the way out till May, 2023 to $US200 a tonne in a sign the coal market is resigned to less Russian coal being available on global markets.
Europe is the major destination for thermal coal from Russia (as well as coking coal for steelmaking). European buyers have been chasing thermal coal from Australian suppliers in the past six weeks but there’s little available thanks to the very wet weather on the East Coast, a lack of new capacity and labour shortages.
Also sending oil lower was news that Covid cases in Shanghai show no sign of easing and the central government has been forced to extend the lockdown to cover all 25 million people. Before the lockdown was in two parts – the first covering one half of the city for four days and the second for another four days with the system ending in April 5.
That has been changed to a lockdown covering all the city as mass testing continues, food and other supplies run short and case numbers mount.On Monday Shanghai reported 268 confirmed cases and 13,086 asymptomatic infections, bringing the accumulated number of COVID-19 infections in Shanghai to 73,000 since March and the total for China to well over160,000.
China’s government has sent almost 40,000 personnel to Shanghai from other regions – part of the country’s biggest coronavirus response to date – much larger than Wuhan in early 2020.
As a result, West Texas Intermediate (WTI) crude oil closed lower despite continuing fears about supplies from Russia
The fear of a sudden slide in demand from China could see any Russian shortfall offset by a drop in imports into China.
WTI crude for May delivery closed down $US1.32 to $US101.96 per barrel. June Brent crude, the global benchmark, was last seen down US$0.72 to US$106.81, while Western Canada Select was down US$1.57 to US$89.95 per barrel.
“Several (EU) governments expressed a willingness to impose sanctions on energy flows, with Russian coal looking like the next target on the West’s radar screen. Crude Oil also seems to be quickly moving up the sanctions list, though Natural Gas still seems to be a no go target.”
“Meanwhile, demand destruction in China threatens to slow the rally, with Shanghai reporting a record 13,354 cases on Monday, up from 9,006 cases a day earlier, and nearly zero cases in early March,” Robert Yawger, executive director, energy futures, at Mizuho Securities USA, said in a note reported by Reuters.
Watch the share prices of Whitehaven and New Hope, the two major ASX listed thermal coal miners and exporters. Just when it seemed the great surge in coal prices had run out of steam five to six weeks after the Russian invasion of Ukraine, it now looks like getting a second wind.
And that could mean billions more in exports for Australia as †his week’s Resources Quarterly for March showed. Total exports of minerals and energy are forecast to reach $425 billion in the year to June and ‘only’ ease to $370 billion the year after.
The June, 2022 forecast is more than $45 billion above the December forecast, the estimate for 2022-23 is $62 billion higher and now a ban on Russian coal in Europe will drive next financial year’s figures even higher.
Much of that rise is because of surging coal prices, followed by rises in LNG, oil and key metals like copper and nickel, while iron ore prices have held up better than expected.
Russia is also a major exporter of thermal coal, used mainly for power generation, ranking behind Indonesia and Australia.
Thermal coal prices have also surged, with the Australian benchmark Newcastle Weekly Index, hitting an all-time high of around $US436 a tonne in mid-March, before declining to $262 this month.
Even after the recent fall, thermal coal prices remain well above the federal government’s forecast of $US193 a tonne for the 2021-22 year. The forecast level would already result in export earnings of $45 billion, nearly three times the $17 billion recorded for the prior year. With coking coal, the total this year is an estimated $A110 billion.
