EU Coal Has Worst Quarter in 7 Years as Nations Shun Fuel

  • Supply drops haven't matched falling demand, economist says
  • Coal prices seen declining another 17% within 2 years

European coal had its worst quarterly performance since 2008 as nations favor less-polluting fuel for electricity generation.

Northwest European coal for 2016 dropped 1 percent to a record $48.40 a metric ton Wednesday, according to broker data compiled by Bloomberg. It’s fallen 20 percent since June 30, the biggest quarterly decline for a front-year contract since Dec. 31, 2008.

China, which consumes more than half of the world’s coal, is seeking to cut its share of the fuel in its energy mix to 62 percent by 2020 from about 66 percent now, leading it to slash domestic output by 4.8 percent and imports by 31 percent in the first eight months of this year. In the U.S., the second-largest user, natural gas in July overtook coal as the primary fuel in power generation for only the second time on record.

“More and more countries are trying to move away from burning coal for power,” Tom Pugh, a commodities economist with Capital Economics in London, said Wednesday by phone. “You’ve got falling demand, but you have not seen falling supply.”

The currencies of suppliers including Russia and Australia have weakened over the past year, blunting the impact of the drop in coal, which is priced in dollars. The U.S. and China have closed some mines at a pace that hasn’t been fast enough to prompt a price rebound, Pugh said.

Biggest quarterly drop since 2008

“Everything driving down coal prices is just going to get worse,” he said. It’s probable prices will reach $40 a ton within two years, he estimated. Rising oil prices may slow coal’s decline because transport costs will probably increase, Pugh said.

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