Coal crisis easing

Coal has troubled the world for the past many months, but it looks like, the crisis is now easing. It all began as the pandemic simmered down and industries began ferociously active again, that led to a swelling demand for power across the world, especially in China surged. Coal supplies used to produce that much power dwindled amid China shutting down many domestic coal plants and also banning coal imports from Australia due to fraying political relations. The yawning supply-demand gap led to prices of coal globally hurtling forward, supply shortages everywhere, and eventual electricity rationing amongst consumers and industries.

Newcastle Coal that benchmarks coal prices in Asia climbed to $269 per ton in October, which is the highest recorded index yet. South African Richard Bay coal prices were trailing $185 per ton, 228 percent higher than prices recorded in Apr-20 (read: “Coal calls”, Oct 1, 2021).

Coal was scarce and expensive; and despite global promises to cut down coal usage for environmental reasons, needed. It is clear that despite China promising to become green, its reliance on coal for power needs and therein, the world’s reliance on China for its goods (in the form of imports) and its production (in the form of value chains connected to China), coal is not going anywhere just yet.

Recent measures taken by China’s top economic regulator National Development and Reform Commission (NDRC) however began to yield the required outcome with prices now tumbling down and the crisis losing its stronghold. China came in guns blazing to ramp up stockpiles and squash price rallies by coming down hard on coal hoarding and speculative bets on the exchange and putting price caps to curb runaway prices. Coal fired power plants that had been shut down were reopened while already operational plants were instructed to keep running at full capacity even during holidays. Meanwhile, the NDRC is developing a price guiding mechanism for coal prices to remain within a reasonable range over the long term.

The transition to green technologies, clearly have to wait. The regulator has had time to rethink its strategy. During the transition, gas is being assessed to be used as a bridging fuel and instead of decommissioning coal plants, it is being considered to keep them running at half the capacity until the renewable technologies are reliable and secure enough.