Companies hesitant to invest in new projects as financing is difficult to come by and long-term demand is uncertain.
The highest coal prices in years aren’t enough to spur investment in new mines in the face of heightened efforts by governments and financial institutions to get the world to abandon the dirtiest fossil fuel.
Prices are surging from China to Europe as demand for coal rebounds from a virus-induced hit, and temporary mine outages curtail supply. Yet companies remain hesitant to invest in new projects with financing difficult to come by and question marks over long-term demand.
That’s a boon for miners’ bottom lines but goes against the grain of the typical commodity cycle, where high prices are a signal to increase production and eventually bring the market back into balance. The disruption to normal dynamics underscores how broader environmental goals are changing investment patterns for fossil fuels.
“We expect most coal miners exporting into the seaborne market will seek to absorb the current increase in coal prices to bolster balance sheets, rather than commit to new supply,” said Viktor Tanevski, a principal analyst at Wood Mackenzie Ltd. “There remains a void of projects that are under construction or construction-ready that can be fast-tracked to alleviate price pressures.”
Strong industrial activity in major economies is aiding coal consumption, while supply is being constrained by myriad issues including heavy rains in Indonesia, China’s mine safety push and strikes in Colombia. In Europe, demand has increased 10% to 15% this year after a colder-than-usual winter left gas storage depleted, according to Axpo Solutions AG.
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