Coal prices are expected to average $85/MT in 2018, down slightly from 2017: World Bank

30th april 2018

Coal prices rose 4 percent in the first quarter (q/q), following a surge of 34 percent in 2017, mainly due to strong consumption in China spurred by cold weather, low inventories and production constraints, says World Bnak in its latest report.

According to the World Bank, the coal prices are expected to average $85/mt in 2018, down slightly from 2017, as inventories are replenished and consumption is curtailed. China, which accounts for more than half of global coal consumption, is expected to be a key driver of coal prices in the seaborne market, as it reforms its energy sector away from coal toward cleaner burning fuels.

Weak hydro power availability in China and natural gas shortages also boosted coal consumption for heat and power generation. In early February the Chinese government capped the coal import price at around $118/mt to encourage domestic production and curtail coal imports. Coal prices have since declined as the boost from winter demand has waned.

The World Bank further noted that, coal consumption faces long-term structural declines in several consuming regions for both economic and policy reasons. In the United States, low-priced natural gas has reduced coal usage in power generation, and led to a reduction in investment in coal supply. China is investing in cleaner energy sources, reforming its electricity sector to reduce inefficient production, and reducing the energy intensity of its economy—all at the expense of coal. Meanwhile, several European countries plan to end coal consumption over the next decade, and India is seeking to reach peak coal consumption over the same period.

Natural gas prices rose 11 percent in the first quarter (q/q), after a 21 percent increase in 2017, as strong winter consumption depleted storage levels in all main regions. European gas prices jumped 15 percent to average $7.2/mmbtu, while the delivered price to Japan averaged $9.0/mmbtu on strong import demand for liquefied natural gas (LNG). U.S. prices averaged $3.1 mmbtu, despite cold weather on lower inventories.

Natural gas prices are projected to rise 8 percent in 2018. In the United States, prices are expected to edge higher buoyed by strong inventory injections and rising exports, but stocks are expected to be amply supplied due to rising production and transport infrastructure. Most of the production growth is expected in shale gas production (mainly in the northeast Appalachian region) and associated gas from expanding shale oil production, mainly in Texas.

Prices in Europe and Japan are expected to increase by 15 and 9 percent, respectively, in part due to current higher oil prices which are indexed with a lag.

Source: WORLD BANK