Global expectations of coal-free countries are not being met. However, China’s demand is strong as the rising temperatures and heat waves driving up coal prices and electricity demand.
In July, thermal coal futures hit record highs as electricity demand soared due to a heatwave in China. As temperatures rose to 37 degrees Celsius, electricity consumption in industrial areas such as Zhejiang, near Shanghai, soared to over 100 million kilowatts an hour.
Due to high energy consumption across the country, coal prices soared above 900 Yuan (roughly $140) per tonne in July. After a pessimistic outlook after the IEA report encouraging countries towards renewable energy, record prices were set for Asian coal in May.
Despite growing international pressures, coal continues its boom in Asia with China at the head. China is trying to shift away from coal. However, the government has been rationing electricity to combat the growing demand for the polluter. The high temperatures and rising demand have forced the government to continue producing and importing to meet the demand.
Huatai Futures Co. analyst Wang Haitao said that “Southern China is very hot” and that the daily power load has consistently broken new heights.
Only 30% of the energy used in Zhejiang comes from renewable sources. This means that many industrial areas across China will continue to rely on coal for many years.
The supply disruptions between Australia and China are another key driver of coal prices. Several fatal accidents in the sector have resulted in inspections, which has halted imports.
Whitehaven Coal’s Chief Executive Paul Flynn explained that there has been a rise in demand. “We are also receiving requests from Japanese customers to transport cargoes. That certainly indicates that the market is a bit short and that more coal is needed.”
The growing Asian demand is partly responsible for the unlikely recovery of this energy source that many Europeans and others have abandoned. The price of Australian coal has increased by 86 percent since 2021. It is now at $150 per tonne towards July, which is the highest level since September 2008. South African coal prices have risen 44 percent since 2021.
While governments may feel the pressure to switch to cleaner energy, growing populations mean that many countries will need to continue to use oil, gas, and coal.
Asia isn’t the only region that is looking to a revival in coal demand. Glencore and Anglo American reached a $588 agreement to purchase BHP and Anglo American in June to become sole owners of Cerrejon’s mine in Colombia.
The IEA projects a 1.8 percent increase in coal demand in 2021. This is higher than anyone could have predicted, as European coal plants become less plentiful. This has made “the least-loved commodity in the world” one of the best-performing assets this year.
This is also a major shift from last year. There was a significant drop in coal demand and prices in 2020 due to lockdowns, and other restrictions related to the Covid-19 pandemic.
As Europe moves away from its coal-mining past, many countries in Asia, Australia and South America continue to invest heavily as the demand for traditional energy sources is not expected to ease.
