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Coal futures have fallen to 12-year lows, hit by soaring production and a slowdown in global buying, including from India and China, which, until recently, showed strong demand.
Benchmark API2 2016 coal futures TRAPI2Yc1 last settled at $52.85 a tonne, a level not seen since November 2003. The contract is now over 75 per cent below its 2008 all-time peak and more than 60 per cent below its most recent high following the 2011 Fukushima nuclear disaster in Japan.
This steady and sharp fall has knocked down shares of big mining companies like BHP Billiton, Glencore and Rio Tinto, and seen many financers exit the sector.
The price fall follows a rise in output from exporters like Australia at the same time as a sharp slowdown in overseas orders from major importers like the United States, and now also China and India.
"Indian coal imports are now under pressure ... Both thermal and met coal imports ran at their weakest annualised rates since October 2014," Australian bank Macquarie said on Wednesday.
"Such a fall might not be a temporary blip. On the thermal coal side, we have seen power plant inventories reach record-high levels, domestic production growth improve significantly and demand growth slow," it added.
Thermal coal is used in power plants while metallurgical coal is used to make iron ore. Demand from China has also slowed, due to a slowdown in economic growth and the government's fight against pollution, to which coal contributes significantly.
In the US, natural gas from shale formations has made gas much cheaper, eating into coal's US share, in addition to the government's plans to move away from coal for environmental reasons. Demand in Europe has been flat as energy efficiency improves, giving renewables increasing shares of the power mix, and many of its economies struggle to grow. Yet at some point the low coal prices could also start to stimulate demand as it has made the fuel super-competitive against its main competitor, natural gas.
Reuters calculations show that the revenues from selling electricity generated from coal in Germany are around 20 euros per megawatt-hour higher than those produced from natural gas. Emerging markets which have yet to provide blanket electricity to its households and need cheap energy to develop their industry also still mostly rely on coal as their main fuel as they prioritize low costs over environmental concerns.
