INSIGHTS FROM AMPHORA
Coal faces an interesting future
These days a dirty word. Yet, coal will continue to be a necessary part of the future for some time to come. Even the U.S. Energy Information Administration acknowledges this recently saying that it expects coal demand from the U.S. electric power sector to increase by 100 million tons in 2021 and export demand to rise by 21 million tons as compared to 20201 . Due to very high electric power prices in the UK, Germany and other locations, coal is back in the generation mix and mothballed plants there are back online even if only temporarily. And, while China has made a pledge not to build new coal-fired power plants outside of China, it still has plans to build 43 new plants and along with Indonesia, India, and Vietnam, is responsible for over 80% of new coal plant build outs2. Coal is also a key part of the production of many metals including Steel and despite plans for Green Steel and other methods of making Steel, the truth is that many of these plans are currently uneconomic, unrealistic or in the very early stages of development. So, it seems that coal just isn’t going away anytime soon.
However, the push to kill coal comes with teeth. Marketing or trading coal is now penalized by financiers and lending banks and by broader forces who can use coal activities to blacken a brand or a business as dirty. New coal mines are often refused development permission or lack the funding and there is also a shortage of coal miners. The push against coal is led by limited access to capital, uncertain demand outlook, labor shortages and the time it takes to increase supply. Strangely enough, it is this incongruency of increasing demand and difficulty increasing supply that is also fueling higher coal prices. S&P Global Platts saw Powder River Basin 8,800 Btu/lb coal at $16.90/ton, the highest price for that grade of coal in over 15 years, for example. Of course, higher natural gas prices are also part of this equation as gas generation took over some of coal’s position in the generation mix. But the COVID slowdown and rebound, and other issues cited above have meant that coal supply is constrained. It is also likely to stay that way as coal producers have no idea how long the demand lasts and face increasing difficulties politically and financially to increase production.
The trend to moth ball and retire coal plants early and scaling back of long-term supply contracts along with little on site inventory suggests that coal prices will remain high and volatile. The need to bring coal plants back online despite the political pressure against coal is also likely to be temporary and simply enhances the uncertainty around coal. This entire situation is a politically motivated shortage as there are plenty of coal reserves around that could be utilized.
DEC-21 ICE API2 Rotterdam Coal Future Price
Coal faces an interesting future as an undesirable fuel yet one that remains necessary in the short to medium-term. Facing a lack of financing support and possibly even financial and other penalties, those trading coal may be tempted to spin off ‘dirty’ trading firms at an arm’s length. Those who remain as coal producers, traders and consumers will face increased risks and exposures – not just to price volatility but to ESG governance issues and reporting, credit issues and much more. Industry analysts Commodity Technology Advisory see a potential for increased software procurement in and around coal in the short term for these and other factors, and see Amphora as one potential vendor benefiting by virtue of a strong offering for bulk fuels like coal as well as a strong reference base.
In a market with price fluctuations and oversupply, it is challenging to maintain revenues and manage credit risk management. A single view of the commodity supply chain is vital.
Amphora is a unique provider in today's Coal marketplace. We offer CTRM and Shipping services under one roof, allowing Coal clients to go to market quicker and for a significantly lower cost.
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