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Tuesday, July 23, 2024

Is coal becoming as valuable as gold in today’s economy?

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In Short:

Thermal coal, the dirtiest fuel, is facing challenges like low prices and reduced demand due to economic troubles and shift to cleaner energy sources. However, coal prices have stabilized at higher levels since the Ukraine war, supported by abundant supply and demand from developing countries. Despite political pressure to move away from coal, demand from Asia remains strong and stable. Investors may find profitable opportunities in the fluctuating coal market.

Thermal Coal Facing Challenges, but Holding Strong

From some angles, it seems like thermal coal, the world’s dirtiest fuel, is having a tough year. Prices are down a bit, China is in economic trouble, and G7 members agreed to phase out coal plants by 2035.

Zooming out a little, however, it’s evident that the embers of thermal coal remain uncomfortably hot. Prices have stabilized at higher levels than before the war in Ukraine began, and coal markets have remained stable amidst economic wobbles and geopolitical tensions.

Supply and Demand Dynamics

Despite challenges, the price of coal is holding up well. Europe’s storage facilities are 65% full, China’s stash is healthy, and global supply is abundant. While political will is reducing consumption in rich countries, developing nations like India are increasing coal usage to meet growing energy demands.

Intriguing Market Stability

Coal market stability is due to it being used mainly for “baseload” power, consistent supply contracts, and limited sensitivity to economic cycles. Demand shifting eastward, coupled with stable market features, continues to make coal a reliable and profitable commodity.

The Future of Coal

Despite the eventual decline in demand, coal’s appeal to investors remains strong due to anticipated supply decreases. This could lead to price spikes and potential profitability for investors willing to take the risk. Private equity groups and companies are already eyeing coal mines for investment opportunities, ensuring that the future of coal remains uncertain yet lucrative.

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