The World Bank expects the price of coal to weaken further in the next two years, adding more pressure for domestic coal exporters, which are already battling Transnet inefficiencies.
The Washington-based lender in its latest Commodity Markets Outlook said prices for Australian and SA coal fell by about 8% in the first quarter of 2024, due to substitution away from coal in the power sector.
The price of Australian coal was 47% lower than a year ago, while the price for SA coal was 30% lower.
“Global coal production is expected to diminish alongside consumption. Declines are envisaged to be particularly sizeable in the US and China. Production is also poised to fall in Indonesia, the largest coal exporter, but increase in India to meet domestic demand,” the bank said.
“Coal trade is estimated to have peaked in 2023 and is projected to decrease faster than consumption and production. Declining demand in the EU is likely to particularly affect coal producers that raised exports following the Russian invasion of Ukraine, including Indonesia, Colombia and SA.”
The World Bank painted a dim outlook for coal consumption in the years ahead because consumption has continued to shift away from advanced economies, with China and India accounting for about 70% of global demand.
“Coal production is envisaged to diminish in line with demand in 2024 and 2025, due mostly to reductions in the US and China. Coal prices are expected to decline sharply in 2024 and fall further in 2025 as renewable power generation meets additional electricity demand.”
The global coal market has experienced a turbulent three years, with demand dropping sharply during the Covid-19 pandemic, only to skyrocket as a post-Covid rebound coincided with Russia invading Ukraine.
Prices for the black rock tanked in 2023, weakening further at the start of 2024.
One of SA’s biggest coal exporters, Thungela Resources, saw its profit plunge 73% in the year ended December. Dividends plunged from R13.8bn in 2022 to R2.8bn.
Coal miners and the mining industry broadly have been hamstrung by the poor performance of Transnet Freight Rail. In 2023, it railed 47.9-million tonnes of thermal coal to the Richards Bay Coal Terminal, compared with 50.3-million tonnes in 2022.
Thungela said last week that while global efforts to reduce emissions from fossil fuels were under way, the demand for energy, including from thermal coal, remained strong. It identified countries such as China, India, Vietnam, the Philippines and Indonesia as key for coal consumption.
The domestic coal industry has stepped in to provide financial assistance to cash-strapped Transnet to procure locomotive spare parts and to secure the coal corridor to Richards Bay.
Transnet said in an update last week that it had come close to delivering on the targets in its recovery plan, lifting its freight rail volumes to 151.7-million tonnes against the 154-million tonnes target. But derailments continue to have an impact and about 390 of Transnet’s locomotives are standing idle, out of a total of 1,520.
Gold
The World Bank said it was upbeat about the price of gold, which had cemented its place as a safe haven asset and reached record highs in April.
“Gold prices continued to surge on heightened geopolitical tensions and purchases by some central banks.
“By contrast, prices for platinum and silver remained relatively stable. Gold prices are expected to increase in 2024, decoupling from the prior inverse relationship with real yields, even despite recent outflows from gold exchange traded funds,” the World Bank said.
“Gold prices are set to stabilise in 2025, but an escalation of ongoing conflicts or further rise in geopolitical tensions could push prices higher.
“Silver and platinum prices are forecast to increase in both 2024 and 2025, with weaker-than-expected industrial activity in major economies a key downside in both cases.”
The upbeat outlook for platinum prices will be good news for SA producers. Platinum futures peaked at $1,300 in 2021 but now hover at about $923, and cost-cutting in the sector has put more than 8,000 jobs on the line.
Louise Street, senior markets analyst at the World Gold Council, said that since March the gold price had climbed to record highs, despite traditional headwinds of a strong US dollar and interest rates that were proving to be “higher for longer”.
“Looking ahead, 2024 is likely to produce a much stronger return for gold than we anticipated at the beginning of the year, based on its recent performance,” Street said.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.