Coal Prices Rise on Mideast Tensions: Morgan Stanley

Morgan Stanley Reports Surge in Coal Demand

A recent analysis from Morgan Stanley indicates that rising tensions in the Middle East are causing a significant shift in energy markets. Asian utilities are increasingly turning from natural gas to coal, driving up prices for seaborne thermal coal.

Global Energy Supply Under Pressure

The ongoing conflict around the Gulf and Iran has elevated energy price risks, particularly concerning the Strait of Hormuz, which handles 20-30% of global seaborne crude oil. South Asian nations are especially vulnerable, with Qatari LNG comprising 60% of their supply. Northeast Asia also relies on Qatar for approximately 15% of its LNG needs, prompting a strategic move toward coal to avoid volatile spot LNG prices.

Impact on Coal Markets and Regional Economies

Morgan Stanley estimates that a sustained disruption to Qatari LNG could force Japan, Korea, and Taiwan to import an additional 1.5-2 million tons of thermal coal monthly, an 8-10% increase. Similarly, South Asian utilities might require an extra 1-1.5 million tons per month.

In China, domestic coal prices are expected to trend higher. Meanwhile, Australia has opened its fuel reserves for the first time since 2022. Extended geopolitical tensions could strain Australia's diesel supply, affecting its coal mine production and further boosting seaborne coal prices, which would benefit Chinese producers.

Summary and Outlook

The shift from gas to coal highlights the interconnectedness of global energy markets. As long as geopolitical instability persists in the Middle East, demand for thermal coal is likely to remain strong, supporting higher prices. Market participants will closely monitor LNG supply stability and the inventory levels in key importing nations.

FAQ

Q: Why are thermal coal prices increasing?
A: Geopolitical tensions in the Middle East are pushing natural gas prices higher, causing Asian power utilities to switch to coal as a more cost-effective alternative for power generation.

Q: Which regions are most impacted by this shift?
A: South Asia and Northeast Asia, including Japan, Korea, and Taiwan, are most affected due to their high dependency on LNG imports from Qatar. This has led them to increase their demand for seaborne coal.

Source: Investing.com