Examining coal’s unexpected price revival

IT’S a matter of basic economic theory that prices for major commodities, such as coal and iron ore,move in cycles.
Nanjing Night Net

As the demand for a commodity increases, so does its price, encouraging new providers to enter the market.

Human nature being what it is, the competition to bring new production on line usually results in a period of over-supply, and prices fall to the point where older, less efficient mines are often put out of business, allowing the fittest to survive in a Darwinian cycle. This is whathappened in the global seaborne market for thermal coal, the main product mined in the Hunter and Gunnedah coal fieldsand shipped from the Port of Newcastle. Prices have fallen by about two-thirds in the past five years, and the industry has beenawash withred ink.In recent months, however, prices have risen noticeably,to the point where the industry and its supporters are sticking their heads above the parapet to declare that the worst is over, and that sunny days may be just around the corner.

But are they?

The difference in this situation, of course, is the massive environmental pall that hangs over the coal industry, thanks to the indisputable role that the majority of the world’s climate scientists say that coalplays in global warming. To many, this realisation should be enough for the coal industryto be wound down with as much speed as is possible. The environmental pressures facing coal hae also underpinned the various declarations thatthis decline is different to previous downturns, in that it’s astructural, rather than cyclical, decline.

But is it?

Not according to the world’s major energy agencies, which map predicted coal use for decades to come.

While coal’s percentage of the energy market may well decline in coming years, overallenergy consumption is likely to keep rising asdeveloping nations become more technically complex. This means that coal exports from a region like the Hunter may well continue to rise, even as coal’s place in the globalscheme of things becomes relatively less important.

How it all plays out will depend on market forces. The cheaper and more efficient that renewable energy becomes, the less role there will be for coal and its obvious problems.

King coal is mortal, but he may be on his throne in the Hunter for a while yet.

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