Coal resurgence questioned: Will it prove temporary?

Headline: Coal Market Remains Volatile Amidst Shifting Energy Landscape

In the ever-evolving world of energy, coal continues to be a contentious commodity, with its future hanging in the balance.

Currently, Newcastle coal futures, the Asian benchmark, are trading above $145 a tonne, reflecting the ongoing demand for this controversial fuel. However, the supply and demand for coal are in a volatile race to the bottom, making trading coal over the next few years a risky game.

Over the past 12 months, some big investors have concluded that Environmental, Social, and Governance (ESG) concerns were a "fad". Yet, the negative impact of coal on a company's ESG credentials has long been a concern, with most greenhouse gas emissions coming from fuels burnt for energy and heating, coal being the largest source.

This has led to a significant shift in the industry, with many energy companies and miners announcing plans to step away from fossil fuels. Glencore, the world's largest listed coal producer and the FTSE 100 commodities giant, has even abandoned plans to spin off its coal business.

Despite these moves, coal production hit new highs in 2023, with global output increasing 1.8% to a record 8.7 billion tonnes. Indonesia and Australia ramped up coal exports last year, while developing countries, including China, India, and Southeast Asia, now consume three-quarters of the global coal supply, compared to a third in 2000.

However, the energy crisis following Russia's 2022 invasion of Ukraine led investors to re-evaluate fossil fuels. Rich countries, such as the US and EU, slashed coal consumption by more than a fifth in 2023. This trend is expected to continue, with global coal consumption in 2026 predicted to be 2.3% lower than in 2023.

ESG concerns have deterred banks from financing new mines, and acquiring permits is becoming increasingly difficult. Yet, coal can also be viewed as a cash-generative and essential part of the energy transition. For instance, Bank RBC estimates that coal will net Glencore approximately $6 billion in 2024, which represents roughly a third of their total earnings.

Coal is often seen as a filthy commodity that harms a company's ESG credentials, but it remains an integral part of the global energy landscape. As the world navigates the complexities of the energy transition, the future of coal will continue to be a topic of much debate.