The Middle East is essentially "cutting off oil and gas," and Asia's "coal super boom" is making a comeback? Domestic coal prices may enter a new round of increases.

（Source: Coal Vision）

The global energy market is accelerating its transition.

So far, regions such as Japan and South Korea have already shown signs of switching their coal procurement. In Asia, the benchmark for thermal coal prices—Newcastle coal prices—has already approached the integer mark of $150 per ton, up about 27% compared with before the conflict. The sustained rise in overseas thermal coal prices has generally been higher than domestic prices; China’s coal import volumes are contracting significantly, and China’s domestic thermal coal market shows “no off-season” despite the seasonality.

CICC believes that if supply risks in the Middle East push oil and gas prices even higher, more coal purchases in places such as Japan, South Korea, and Europe may follow, thereby lifting seaborne thermal coal prices. Domestically, coal will continue to play the role of the “keystone” for energy supply; after the high-demand season arrives, the price of coastal thermal coal is expected to move up further.

The Middle East is basically “cut off from oil and gas”

The Strait of Hormuz—this global energy “main artery”—is seeing dwindling hope for reopening in the foreseeable future. Third-party statistics show that in the past week, the number of vessels passing through the Strait of Hormuz remained at an extremely low level, down 95% compared with before the outbreak of the Iran-U.S. war on February 28.

According to the latest data released on the 24th by shipbroker Clarksons, in the week up to March 23, the average daily number of vessels transiting the Strait of Hormuz was only about 4 ships, compared with about 125 ships per day before the conflict broke out. In the past week, only 10 tankers departed the Middle East Gulf via the Strait of Hormuz, with a total loaded volume of roughly 12 million barrels; under normal circumstances, the strait typically handles about 250 vessels, with a transportation scale close to 300 million barrels.

Among the vessels currently transiting the strait, only a very small number are very large LPG carriers. Two vessels transited on March 22, and another two on March 23 (both related to India). Since Iran threatened to take action against any vessels using this waterway, the volume of LPG vessel traffic has fallen by about 80% compared with normal levels.

Clarksons noted that currently about 1,100 ships are located within the Middle East Gulf (excluding local trading vessels). This includes about 300 oil tankers, accounting for 6% of the world’s crude oil tanker fleet capacity and 4% of the world’s product tanker capacity; in addition, it includes 4% of the capacity of very large gas carriers (VLGC), as well as about 1% of capacity of container ships and bulk carriers.

Jokeer? Japan and South Korea have already started a “coal rush” battle

The impact of this conflict goes far beyond the oil and natural gas markets, affecting the global energy system. Because more than half of Asia’s crude oil and natural gas are imported from the Middle East, Asian countries have had to increase coal-fired power generation. According to estimates by Changjiang Securities, if the Strait of Hormuz is locked down for the long term, even the single item of coal-and-power replacement demand alone would drive global electricity thermal coal consumption up by 84.86 million tons on an annualized basis.

On March 20, the global benchmark for thermal coal—the ICE Newcastle coal futures month-ahead contract transaction price—closed at $146.50 per ton, further pushing toward the integer threshold of $150 per ton, up about 27% compared with before the conflict.

Meanwhile, under additional pressure for further tightening in global coal supply, countries are strengthening energy reserves. The Thai government has ordered coal-fired power plants to operate at full capacity. South Korea has taken similar measures, restarting existing coal-fired power plants. As an important coal-producing country in Asia, Indonesia has decided to sharply reduce planned coal production quota, aiming to stabilize the market, improve coal prices, and enhance its bargaining power in international market pricing. At the same time, it requires coal producers to prioritize meeting domestic demand. In Australia, New South Wales—an important region for producing thermal coal—announced a ban on new applications for coal mining.

Guotai Junon? Haitong Securities’ analysis believes that currently regions such as Japan and South Korea have already shown signs of switching coal procurement first; from the coal shipment directions out of Australia, their coal-rush trend can already be seen. Global short-term energy switching is taking place.

CICC’s report argues that based on the current oil-coal-gas calorific value ratio pricing, the post-conflict rise in coal prices is clearly lower than that of oil and gas. Although the coal-to-gas value ratio remains in the relatively high range within the 2023–2025 fluctuation band, it is still far below the peak after the Russia-Ukraine conflict. European gas-to-coal power generation parity charts show that gas prices have just broken above the upper limit of economic viability for coal power plants. Based on the current relative pricing, it may still be insufficient to support large-scale switching from gas to coal power generation; however, if supply risks push gas prices even higher, we may see more coal purchases in places such as Japan, South Korea, and Europe, which would in turn raise seaborne coal prices.

Domestic coal prices may begin a new round of increases

With international thermal coal prices continuing to rise, the cost-effectiveness of imported coal keeps deteriorating, and China’s domestic thermal coal market shows “no off-season.” Currently, the delivered-at-port cost of imported coal remains at a high level, while the gap versus domestic trading coal prices (domestic wholesale market prices) continues to widen. Market expectations for improving domestic coal are sustained, and funds are also increasing their inflows into related sectors. The thermal coal ETF Guotai (515220), which tracks the CSI Coal Index, has recorded net inflows of more than 830 million yuan for five consecutive days. Its gain year-to-date exceeds 23%, and its latest size has reached 10.6 billion yuan.

According to statistics from the Ordos Coal Network, currently the delivered-at-port price in South China of imported Indonesia 3,800 kcal/kg coal exceeds the price of the same-category domestic-traded coal by 60 yuan/ton. The delivered-at-port price in South China of imported Australia 5,500 kcal/kg coal exceeds the price of the same-category domestic-traded coal by 28 yuan/ton. This has caused some end-user procurement strategies to change, providing a solid bottom support for pulling up domestic-traded coal prices. Data from the General Administration of Customs show that in February, China imported 30.94 million tons of coal and lignite, down 33% month-on-month and down 10% year-on-year. Most market participants expect that in March, coal import volumes are still likely to achieve year-on-year and month-on-month declines at the same time.

CICC believes that with overseas energy prices surging higher, the importance of domestic energy security will correspondingly stand out, and coal will continue to play the role of the “keystone” for energy supply. Currently, coal inventories are basically sufficient; with domestic thermal coal facing comparatively tighter fundamentals, it will bring only limited upward price pressure. With overseas oil and gas prices staying high, it is expected that after the high-demand season arrives, Qinhuangdao port coal prices may gradually move up into a trading range of 800–900 yuan/ton. If extreme risks occur, domestic thermal coal prices may face further upward risk.

CITIC Securities believes that the impact of this Middle East conflict on the global coal supply contraction is being transmitted to prices in a gradual manner. Keeping oil and gas prices at high levels is expected to drive an increase in global consumption of high-calorie coal, raising the coal price center of gravity in the Asia-Pacific region and benefiting domestic coal price expectations to continue improving.

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