Coal prices tumble as green energy surges in China

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Coal prices fell to their lowest level since June 2021, mainly due to oversupply and weak demand from China. Meanwhile, solar power capacity in China has doubled that of coal, with a year-on-year growth rate of 33.7%. As China’s commitment to renewable energy strengthened, coal-fired power generation showed a modest 1.8 percent increase. In Europe, excess inventories and lower-than-expected winter demand led to a reduction in coal imports in the first quarter of 2023. Seaborne thermal coal prices in Asia also suffered as demand weakened in Europe and the drop in liquefied natural gas (LNG) prices. This decline in coal prices reflects the global shift towards cleaner energy and the impact of green investments on the fossil fuel market.

  • China’s solar power capacity has doubled that of coal.
  • The decline in coal prices is attributed to fears of oversupply and weak demand from China, the largest coal consumer.
  • Lower spot LNG prices and the diversion of coal from Europe further contributed to the decline.

Dynamics of the coal market and growth of renewables

Coal futures extended losses, falling below $130 per tonne, marking its lowest level since June 2021. This decline is attributed to oversupply concerns and continued subdued demand from China, the more large consumer of coal. Chinese steelmakers ramped up output in response to falling prices, while major coal-fired power plants built record inventories by the end of May. China’s coal imports also fell in May, reflecting the slow economic recovery and weakening demand from the energy and steel sectors.

Solar power capacity in China has reached double that of coal, growing at a rate of 33.7% year-on-year. China’s installed power generation capacity is 2.62 billion kilowatts, with non-fossil fuel power accounting for 50.5 percent of total installed capacity. In contrast, coal-fired power generation increased by just 1.8 percent in the first quarter of 2023. This shift in power generation capacity highlights China’s commitment to transitioning to cleaner and more renewable energy sources, such as solar and wind energy.

The influence of Europe on Asian thermal coal prices

Marine thermal coal prices in Asia plunged to a two-year low, mainly due to weakening demand in Europe and falling LNG prices[3]. Indonesian and Australian thermal coal grades suffered significant losses, with Indonesian grade down 57% from a 2022 high. Australian high-grade thermal coal, mainly sourced from Japan, South Korea and Taiwan, is now trading at a quarter of its all-time high.

Declining European demand for thermal coal is impacting Asian maritime prices, with regional swing suppliers such as South Africa redirecting their exports to Asia. European imports of seaborne thermal coal are expected to hit their lowest levels in two years in June, while Asian imports from South Africa and the United States are surging. In June, Asia is expected to import nearly 4 million tonnes of coal from South Africa, up from 2.28 million tonnes in December. The decline in Asian coal prices is not driven by lack of demand, but rather by cheaper spot LNG prices and the diversion of coal from Europe.

Global drive towards clean energy

Falling coal prices and the rise of renewable energy sources, especially solar energy, demonstrate the global shift towards cleaner energy and its impact on the fossil fuel market. China’s push towards renewable energy is driven by the need to address climate change. While coal power generation still plays a significant role in meeting energy demand, the rapid growth of solar power capacity shows China’s commitment to transitioning to a greener and more sustainable energy future.

As countries around the world continue to invest in green energy solutions, the demand for fossil fuels such as coal will decline. Technological innovation and advances in renewable energy sources are expected to optimize performance and expand their range of applications in the market. This ongoing shift towards cleaner energy solutions is likely to have a lasting impact on the fossil fuel market and further drive down the price of coal in the coming years.

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