Coal Is Burning Brightly Again

It’s going to be more expensive to punish poorly-behaved children this Christmas.

Thermal coal – the much-maligned commodity that is used to generate electricity in power plants, has seen a dramatic spike in prices in recent months.

What’s Happening?

Thermal coal from Australia (which is used as the benchmark for Asia) has climbed 45% to $80 a ton since the beginning of November. The South African benchmark has surged 65% to $100 per ton. Analysts say a few things are stoking the fire:

  • Roughly 25 million tons of Colombian coal production capacity has been taken offline this year due to weak prices and a dearth of investors willing to finance new mines.
  • At the same time, demand from places like China has snapped back from a lull in industrial activity during the outset of the pandemic.
  • Kids cheating on at-home tests has not played a meaningful role.

Trade Spat: An ongoing trade Chinese-Austrlia trade spat has resulted in China looking elsewhere for its coal including places like Indonesia, Russia, and even South Africa

Last week, the International Energy Agency said a global economic recovery would drive a 2.6% increase in coal demand next year.

Industrial Action: Separately, the price of iron ore (a key ingredient in steel making) is up almost 90% since the end of 2019. China’s steel producers have called on regulators to investigate a recent rise in prices, which traders have blamed on speculators. Importantly, iron ore isn’t easily tradable on Robinhood.