Coal rally seen capped despite LNG surge, unlike 2022 crisis

Thermal coal prices are rising on the back of surging liquefied natural gas (LNG) prices linked to the Iran conflict, but analysts say the rally is unlikely to mirror the sharp gains seen during the 2022 energy crisis.

According to Bloomberg Intelligence, while coal could still benefit from gas-to-coal switching, structural constraints across key markets are expected to limit upside.

“The conditions that drove the extraordinary coal rally in 2022 are largely absent,” said senior industry analyst Alon Olsha.

In 2022, coal and gas prices surged simultaneously due to multiple supply shocks, including sanctions on Russian coal and weather-related disruptions in Australia. By contrast, the current rally is primarily driven by LNG supply concerns stemming from the Iran conflict.

Limited switching capacity

Bloomberg Intelligence noted that the scope for further gas-to-coal switching is now more constrained.

European coal-fired power capacity has declined since 2022, while utilities in North Asia are limited by long-term LNG contracts and operational constraints on coal plants. In addition, many Asian power systems are already heavily reliant on coal, leaving less room for incremental demand.

Still, sustained LNG tightness could push coal prices higher. Analysts estimate that if disruptions persist for several weeks, prices could rise to between $165 and $185 per tonne.

Read also: Global coal prices rise as LNG disruptions drive fuel switching

The Iran conflict has already lifted Newcastle coal prices by about 20%, with spot prices hovering around $135 per tonne.

Earnings boost, but not a supercycle

At current price levels, coal producers are expected to benefit, though gains may be more moderate than during the last crisis.

Earnings at Glencore could rise by around 10% from thermal coal and 12% from other commodities. Meanwhile, Yancoal and New Hope Corporation could see earnings increase by roughly 60%, based on forward estimates.

However, Bloomberg Intelligence said a sustained price rally would require prolonged LNG disruption and clearer signs of increased physical demand.

Freight surge yet to translate into demand

Despite rising prices and freight rates, physical coal shipments have yet to show a meaningful increase.

Data from key export hubs such as Newcastle and Samarinda indicate subdued loading activity, suggesting that recent price movements are driven more by precautionary buying, logistical constraints and tighter vessel availability rather than a surge in consumption.

Analysts said any meaningful increase in coal demand would likely take weeks to materialise, as procurement decisions work through the supply chain.

Still supportive, but capped

While LNG disruptions are improving coal’s competitiveness—especially if gas prices exceed $14/MMBtu—coal is unlikely to fully match gas-parity pricing due to policy, contractual and operational limits.

Even so, continued tightness in LNG markets could support higher coal usage in Asia and, to a lesser extent, Europe, particularly if LNG cargoes are diverted away from the Atlantic basin.

If the disruption proves short-lived, prices are expected to stabilise. But a prolonged conflict could still lift coal demand—albeit without triggering a repeat of the extreme 2022 rally.

Editing by Reiner Simanjuntak