Rising Coal Prices#
Morgan Stanley has observed that prices for seaborne thermal coal are increasing due to escalating tensions in the Middle East. As a result, Asian utilities are shifting from natural gas to coal-fired power generation to manage costs.
Impact of Middle East Conflicts#
The ongoing conflict in Iran and surrounding Gulf regions is driving up energy prices. The Strait of Hormuz, a critical shipping route, is responsible for 20-30% of global seaborne crude oil shipments. Countries in South Asia are particularly vulnerable, as Qatari liquefied natural gas (LNG) makes up 60% of their energy supply. Northeast Asia also relies on Qatar for about 15% of its LNG needs.
Increased Coal Demand in Asia#
To mitigate the high prices of spot LNG, Asian utilities are increasing their coal generation. Morgan Stanley estimates that Japan, Korea, and Taiwan may need an additional 1.5-2 million tons of thermal coal imports each month if disruptions to Qatari LNG exports persist. This could represent an 8-10% increase in coal import demand. Similarly, South Asian utilities might require an extra 1-1.5 million tons of seaborne coal imports monthly if the LNG outages continue for several months.
Effects on China and Australia#
In China, domestic coal prices are expected to rise year-over-year, though the chemical sector's demand for coal remains limited. Morgan Stanley anticipates that additional coal volumes could account for about 1.3% of China's total thermal supply under extreme conditions. Meanwhile, Australia is preparing to open its fuel reserves for the first time since 2022, which could impact diesel supply for coal mine production and further drive up seaborne coal prices, benefiting Chinese coal producers.