IEA expects global coal demand to return to all-time highs in 2022

Glencore, one of the world’s largest diversified miners, agreed to supply coal to Japan's Nippon Steel at US$375 a tonne through March 2023, Bloomberg reported, representing one of the highest prices ever paid by the nation and further validating that high coal prices are here to stay.

Newcastle coal futures almost doubled year-to-date, reaching all-time highs of US$440 a tonne in early March before a brief dip to around US$255 by late March.

Now, there’s no shortage of bullish headlines for coal including:

• Heatwaves across Asia and Europe boosting energy consumption

• Flow of Russian coal to Europe coming to an end

• China potentially backflip on Australian coal ban

• Europe ramping up coal imports as energy fears grow

• European coal plants on standby as gas supply is cut off

Newcastle coal futures chart (Source: TradingView)

Global coal demand to return to all-time highs

Global coal consumption in 2021 rose 5.8% to 7.95bn tonnes, rebounding above 2019 levels and very close to all-time highs, according to the International Energy Agency. 

Coal consumption was firing on all cylinders in 2021, notably:

• Chinese consumption rose 4.6% to an all-time high of 4.23bn tonnes

• India consumption rose 12% to an all-time high of 1.05bn tonnes

• United States and European Union consumption rose 15% and 14% respectively, primarily due to gas-to-coal switching in power generation

Global coal consumption was little changed in the first-half of 2022, as the "economic slowdown more than offsetting any demand increase resulting from higher natural gas prices," the IEA report said.

"For 2022 as a whole, we expect global coal demand to increase by 0.7% from 2021 to about 8 billion tonnes. This would match its all-time peak reached in 2013."

Coal stocks turn to cash machines

Most mid to large cap ASX-listed coal miners are expected to generate 30%-plus free cashflow in FY22.

Whitehaven Coal (ASX: WHC) for example, expects to deliver earnings of $3.0bn in FY22 compared to its market cap of $6bn.

Even with coal's structural benefits in place, miners trade at rather undemanding valuations compared to peers like iron ore and copper, perhaps due to the unshakeable stigma of 'dirty' coal.