Fitch raises thermal coal price predictions as energy crisis deepens

Influential ratings firm predicts rise in thermal coal prices over next few years as the energy crisis and global economic headwinds worsen.

Fitch Ratings has cut its price assumptions for most metals and mining products in the face of a worsening outlook for economic growth worldwide, yet it has also simultaneously raised its cost expectations for thermal coal on the back of the deepening energy crisis. Amid fears of revised growth expectations and continuing increases in European gas prices, the influential ratings firm has predicted that reliance on coal-powered energy generation will increase between now and 2025. Yet it said it expects prices to rise even higher over 2024-25 as expected new capacity in coal-producing countries remains limited and coal mining costs increase. Even so, the firm’s long-term assumptions for thermal coal remain unchanged as Fitch predicts “consumption in China should gradually decline”.

A global economic slowdown and expectations of weaker short-term demand have pushed copper assumptions lower over the next year, however medium- and long-term predictions remain buoyant due to anticipated demand for the metal as part of the energy transition, according to Fitch.

Lower steel demand has forced the price assumptions down for a range of mining products, including iron ore, coking coal and nickel, it explained. A build-up of inventories combined with falling steel production, producer margins and input requirement have damaged the short-term demand for iron, while a switch to thermal coal production has tempered prices of coking coal, but medium- to long-term views remain unchanged.

Subdued demand from the stainless steel sector, alongside healthy production levels from Russia and Indonesia, have weakened the short-term case for nickel prices, but long-term demand from electric vehicle production should boost the investment case.

Similar impacts have driven the prices of aluminium and zinc lower over the short-term, with the former struggling due to a weak Chinese construction market and the latter suffering from inflation and recessionary pressures stifling demand while supply remains flat. Both should benefit over the medium- to long-term as markets rebalance, it said.

Safe haven gold remains unchanged as high geopolitical instability and inflationary pressures continue to weigh but a strong dollar dampens prices. Fitch analysts expect the price of gold to moderate in the long-term as risks abate and the interest rate cycle continues, they said.