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The price of Pacific coal has surged to just over $100 per tonne for the first time since 2019. Economists at Capital Economics think that the price will remain elevated for the rest of this year for two key reasons.

Coal to hold onto most of its recent gains for the rest of 2021

“We forecast that demand in Asia will rise in YoY terms for the remainder of this year. For one, we expect energy-intensive manufacturing activity to continue to grow as demand for electronic goods and components looks set to remain high for some time. Moreover, we suspect that most coal consumers in East Asia will soon want to replenish their stocks, which have been rundown in recent months due to the cold weather. Finally, the relatively high price of spot liquefied natural gas (LNG) should boost coal-based power generation. LNG prices have risen recently due in part to export-related issues, which are unlikely to be fully resolved quickly.

“We expect that supply growth in top-producer China will continue to slow. Coal production in China surged at the end of last year, as part of its self-sufficiency drive. However, several fatal mining accidents in the country have led to an increase in safety inspections, which has restricted supply growth over the last few months. And while some entities in China are calling for much higher coal production, we suspect that stricter enforcement of safety and environmental rules will delay new projects coming on stream and should therefore limit any meaningful gains in domestic coal output.”

“We forecast that the average price of Pacific coal will be around $90 per tonne in 2021, which would represent a marked increase from $75 and $65 in 2019 and 2020, respectively.”