In 2022, a convergence of soaring global coal demand and supply shortages led to exceptionally tight coal markets and unprecedented price levels. There was an overall rise in energy prices after Russia’s invasion of Ukraine, while high gas prices in particular drove many countries to switch to coal-fired generation. Supply-side factors included adverse weather conditions associated with La Niña, triggering heavy rainfalls and flooding, severely impacting coal production mostly in Australia. Additionally, a temporary export ban imposed by the Indonesian government in January 2022 to address domestic shortages lowered the availability of thermal coal in the market. Furthermore, the European Union banned Russian coal and a portion of these supplies could not be diverted to other markets due to eastbound rail bottlenecks. As a result of all these factors, high-CV Newcastle free on board (FOB)1 and ARA (Amsterdam Rotterdam Antwerp)2 thermal coal prices surpassed USD 400/t several times in 2022.

Newcastle and ARA prices first peaked just below USD 400/t at the beginning of March 2022, when Russia’s invasion of Ukraine unsettled the markets. Following a brief decline below USD 300/t in April, prices ramped up ahead of announced western sanctions. Newcastle prices, also boosted by supply shortages, first surpassed USD 400/t in May and maintained these levels until declining steeply at the beginning of 2023. Prices reached an all-time high of USD 443/t in September 2023. ARA prices peaked three times above USD 400/t between the end of June and the end of July, before embarking on a downward trajectory after reaching the all-time high of USD 408/t.

In the last quarter of 2022, ARA prices began to decline due to mild weather conditions and ample stockpiles at European coal-fired power plants. ARA prices converged with prices in South China at around USD 146/t at the beginning of 2023. Throughout 2022, prices for high-CV coal in South China deviated substantially from the trends for Newcastle and ARA, and remained comparably stable at an average price of about USD 169/t. Abundant domestic supply limited the exposure to high import prices.

Whilst ARA prices plunged towards the end of 2022, coal prices in Newcastle commanded a premium of up to USD 225/t over ARA in January 2023. The price disparity arose from robust demand for Australian coal coupled with persistent supply shortages due to La Niña. Towards the end of the second half of 2023, prices gradually converged. Newcastle and ARA prices for high-CV thermal coal reached levels around USD 119/t, last seen at the beginning of 2022. Prices in South China ranged just below USD 100/t, last observed in mid-2021.

In response to Russia’s invasion of Ukraine, several western countries and institutions imposed sanctions on Russia, including exclusion from the international payment system SWIFT, severely impeding the settlement of Russian coal trades in dollars. Furthermore, the European Union implemented a ban on Russian coal effective from August 2022, and some Japanese and Korean utilities announced their intention to cease buying Russian coal. In 2021, the European Union, Japan and Korea collectively accounted for about 40% of Russian coal exports. Due to sanctions, cargo insurance was more difficult to procure.

Despite the European ban not coming into full effect until early August, the spot market reacted swiftly and Russian coal faced persistent discounts starting from March and lasting through the year. In the third quarter of 2022, when ARA prices surged, coal at Baltic ports and in Vostochny was traded at a discount of up to 73%. Coal prices in the Black Sea region, geographically close to alternative buyers who did not impose sanctions on Russia, such as Türkiye and India, experienced discounts of up to 58%.

With plummeting ARA prices in the last quarter of 2022, the Russian discount began to dissolve. Coal prices at Black Sea ports converged with ARA towards the end of 2022, while coal at Baltic ports and at the port of Vostochny continued to be traded at a discount of around 30% to 40%. In first half of 2023, ARA and Russian prices showed a parallel trajectory, with prices at Russian ports approaching the nominal price levels observed at the beginning of 2021.

Prices for high-CV FOB coal in Newcastle were supported by limited substitutability. In the Pacific Basin, coal is traded across a wide range of calorific values, representing individual market segments rather than direct substitutes. This characteristic was evident in the price trajectories observed in 2022.

While high-grade Newcastle FOB thermal coal (6 000 kcal/kg) soared to unprecedented levels in 2022, prices for Indonesian low-grade thermal coal remained relatively stable. The high-grade thermal coal market was so tight that, for almost the entire second half of 2022, high-grade thermal coal in Newcastle traded above metallurgical coal, which was unprecedented. This anomaly was resolved at the beginning of 2023. Prices for metallurgical coal were supported by Chinese buyers resuming imports from Australia in February 2023.

The exceptionally high prices were also evident when comparing high-grade thermal coal to other commodities. In September and December 2022, high-grade thermal coal was temporarily trading at higher prices than Brent Crude Oil in energy terms.

The tumultuous conditions in the coal spot market during 2021 and 2022 also influenced forward prices. Whilst exhibiting strong backwardation (when spot prices are higher than futures) from mid-2021 to the end of 2022, market expectations on futures markets varied broadly.

During the peak price of USD 254/t in October 2022, the market initially expected long-term prices to return to just below USD 100/t by 2024. However, the sanctions imposed on Russa following its invasion of Ukraine fundamentally altered market expectations. By mid-2022, forward prices anticipated coal prices to remain above USD 200/t until mid-2025.

Following the sharp decline in spot prices at the end of 2022 and their stabilisation in the first half of 2023, the forward price curve for API2 (a price index for coal deliveries to Europe, CIF) adopted a flat trend. It is worth noticing that the current flat forward curve is about USD 65/t higher than the last flat curve in March 2021. Among other factors, the inflation of supply costs play an important role in this.