Prices for coal rallied on Tuesday morning in a move that analysts said was led by speculative activity.
A market research firm has cited an unusual decline in demand for coal in the European power sector in a report, and for May’s weekend heatwave in Europe, a coal plant in Switzerland unexpectedly shut down.
The U.S. has lost market share in Europe because the Trump administration has imposed tariffs on Chinese steel and aluminum. Europe is demanding retaliatory tariffs to the tariffs.
Because Europe’s power plants run on relatively expensive coal, according to PJM Interconnection, the company that runs a large chunk of the grid in the mid-Atlantic. One U.S. thermal coal burned to produce one megawatt of electricity costs about $120.
Prices for prompt delivered coal futures, which reflect where prices were for delivery of the commodity in the coming month, traded at more than $80 per ton Tuesday morning.
Market research firm Argus Research cited several reasons for the unusual rise.
“The drop in coal demand reflects some unexpected closures of older plants in Europe after hot weather over the weekend reduced available power at times and led to extra outages,” Argus said in a report released Tuesday.
“The revised EU energy outlook point to reduced consumption of coal in Europe through 2020 due to demand for natural gas and renewables, while coal production in the EU may rise slightly until 2021.”
In other words, the deficit could be plugged by other forces. “In other words, the path of change is more likely to be shifting from coal to natural gas, renewable energy and nuclear than a return to coal in Europe.”
Argus said increasing wind and solar energy made coal less useful for supplying the European power grid.
While Americans may be fretting about the death of coal, Argonne National Laboratory officials concluded last year that the ultimate demise of coal will have limited impact on the global economy. They called it unlikely that coal’s prices will ever return to 2004 levels, let alone 2009.
Global coal production reached about 40 billion tons in 2017, according to Argonne. That’s about 6 percent of the world’s total production.
Over the next several years, coal production in China, India and other emerging countries is expected to be insufficient to meet growing demand in the developed world.
“The share of global coal production is still set to grow over the next several years. But the increasing share of global coal production in emerging economies — even beyond projected levels in 2020 — is going to take the heat off Western coal-producing nations such as Australia,” Argonne said.
