Asia’s Coal Price Jumps as EU’s Russia Ban Adds Supply Risks

(Bloomberg) -- Coal prices in Asia jumped as Europe's move to ban Russian imports of the fuel threatened to deliver a new global supply challenge.

Russia is the third-largest supplier of thermal coal and dominates sales to European nations, meaning there'll be increased competition in a seaborne market that's experienced unprecedented price swings this year after disruptions.

Newcastle coal futures for April jumped 6.4% to $281 a ton Tuesday, the biggest gain in almost two weeks, according to ICE Futures Europe. That follows a similar advance in Europe. Prices are poised to extend gains as European consumers step up a hunt for alternatives to Russian coal.

Miners in Indonesia, the top shipper of coal for power stations, have been approached by some potential buyers from European countries including Italy, Spain, Poland and Germany, said Hendra Sinadia, executive director at the Indonesian Coal Mining Association.

It isn't clear if the suppliers will be able to boost deliveries as they have limited spare capacity and are mandated to first prioritize local demand. Producers in Australia, another key exporter, have flagged they have limited ability to raise sales to Europe.

“A lack of investment in new capacity, and relatively strong demand in Asia leaves the market short of filling any gap left by cuts to Russian exports,” Australia & New Zealand Banking Group Ltd. strategists Brian Martin and Daniel Hynes wrote in a Wednesday note. Russia accounted for about 18% of global exports in 2020, they said.

New Hope Corp. jumped 6.9% in Sydney trading Wednesday, as Whitehaven Coal Ltd. advanced 5.5% and Yancoal Australia Ltd. rose 4.8%.

Tight markets for coal and natural gas have created energy shortfalls at a time when wind and hydro have been unreliable in some regions. Europe and Asia have been hit the worst, with skyrocketing prices, while there are threats of power shortages in emerging nations like Pakistan.

Rising electricity demand and a lack of new coal supply should keep prices elevated, said David Lennox, a resources analyst at Fat Prophets in Sydney.

Even before new sanctions, energy companies in Europe and some parts of Asia were avoiding additional purchases of Russian fuel, and seeking alternatives, in anticipation of further government measures against Moscow.

Asian coal prices had declined from a record over the last several weeks, with the Covid lockdowns in China -- the top consumer -- curbing factory activity and trimming fuel demand. Still, benchmark prices are more than two-and-a-half times higher than a year ago.

Thermal coal futures in Zhengzhou rose as much as 1.2% as of 11:15 a.m. local time.

China's coal imports from Russia almost halved in March from the previous month, according to shipping data compiled by Bloomberg. Talks between Chinese importers and Russian miners last month on potentially boosting trade were focused on overcoming a lack of transport capacity, coal quality and obstacles to cross-border payments, according to the China Coal Transport and Distribution Association.