Seaborne Coal Prices May Rise 40% to $100/Ton by 2020, IEA Says

Seaborne thermal coal prices may rise 40 percent by 2020 as producers shut high-cost mines and demand increases, according to the International Energy Agency.

Thermal coal prices will rise to more than $100 a metric ton by the end of the decade and to more than $110 by 2040, based on a scenario of annual average economic growth of 3.4 percent, the Paris-based agency said in its annual World Energy Outlook. India will overtake the U.S. as the second-largest coal consumer after China before 2020, the IEA said.

A rapid increase in demand from Asia-Pacific nations drove prices to a record in 2008 and spurred investment in countries from Indonesia to China, the IEA said. Production growth peaked in 2012 and demand has slowed since then, pushing the year-ahead contract in Europe to a record-low closing price this month.

Coal producers have responded by shutting expensive mines, boosting output to lower unit costs and cutting expenses, according to the IEA. Consumption is expected to increase in the medium term, which will bring supply and demand into balance, the agency said.

Year-ahead coal for delivery to northwest Europe rose to a record $218.50 a ton in July 2008 and dropped to $69.60 a ton on November 7. The contract traded at $71.60 a ton in London today, broker data show.

Demand for thermal coal will grow 15 percent by 2040, with two-thirds of that increase taking place in the next 10 years, the IEA said in its report. Trade to China will climb to 280 million tons by the end of the decade from 213 million tons in 2012, before declining to 253 million tons by 2040.

India will become the world’s largest importer by 2040, buying 429 million tons a year of the fuel, the agency said. U.S. consumption will decline more than a third over the same period.

European imports will drop 38 percent to 132 million tons a year in 2040 from 213 million tons in 2012, the IEA said.

To contact the reporter on this story: Alessandro Vitelli in London at avitelli1@bloomberg.net

To contact the editors responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net Andrew Reierson, Dan Weeks