The crisis in the Middle East has caused a true global energy shock, pushing many countries to massively return to coal as an alternative to gas and oil, which have become difficult to obtain.
As highlighted by the Financial Times, which dedicates a lengthy article to the topic, despite being out of the heating season, coal shipments have increased impressively, with freight rates soaring and imports heading towards one of the busiest months ever.
This return is mainly affecting Asia, but with repercussions also felt in Europe.
An unexpected boom
In recent months, coal shipments have sharply increased precisely when they usually decline, between April and May, with the end of the heating season in the northern hemisphere.
Coal has become the main cargo for medium-sized ships, and global imports in May are expected to be the third highest ever.
According to pricing agency Argus, freight rates have risen by an average of 50% between February and May.
The substitution between gas and coal
As clearly explained by Angeliki Frangou, CEO of the Greek company Navios Partners, one ton of gas can be replaced by about two tons of coal. This simple ratio has led many countries to rediscover a fuel that seemed destined for decline.
Frangou admitted she was surprised to see how many states are now looking at coal as an emergency solution.
The causes
The drastic reduction of traffic through the Strait of Hormuz has forced many importers to seek alternative sources in more stable areas.
Added to this are the export restrictions imposed by Indonesia in April, which had already tightened the thermal coal market.
The result was a “super-loading” of coal demand caused by the energy shock of the war.
The surge in Asia and the return to coal power plants
Asia is the main driver of this recovery. Countries like Thailand, Vietnam, and Japan have increased coal power generation, while South Korea has restarted plants and temporarily removed usage limits.
Even nations that were trying to diversify energy sources have reversed course, reigniting plants that had been put on standby.
Shipments to Japan, South Korea, and the European Union grew by 27% in April compared to the previous year.
Effect on freight rates and longer routes
Greater distances from major coal mines, especially those in Indonesia and Australia, to Asian and European markets have contributed to rising transportation costs.
Freight rates from Indonesia have increased by 60-75%, those from Australia by 40-50%.
The scarcity and price increase of ship fuel have also played an important role in driving up rates.
The case of China
China, the world’s largest coal consumer, has intensified purchases from Australia, Russia, and South Africa to compensate for reduced Indonesian supplies. Additionally, Beijing has increased “coal-to-chemicals” production to make up for the global shortage of petrochemicals caused by the conflict.
In March, coal prices in Asia hit their highest levels in over two years.
With the arrival of the summer season and increased demand for air conditioning, many operators expect market pressure to rise further in the coming months.
