Global coal prices may have further to fall amid a massively oversupplied Chinese market, but they risk spiking towards 2020 as fresh demand from Asian nations will struggle to be met, consultants IHS said on Thursday.

“We believe that prices in 2016 may have to come down further from 2015 levels, but probably not by as much as they did from 2014,” said IHS Energy’s David Price in an emailed statement.

In 2015, prompt-delivery European steam coal prices averaged $56.77/tonne. In contrast, in 2014 they averaged $77.20, and today they are struggling to hold levels of $45.00, IHS said.

Cheap coal prices relative to gas increases the likelihood that EU carbon prices will rise as utilities favour the more carbon-intenstive fuel. However, analysts also expect gas prices to fall in the coming years on a global supply glut.

FUTURE SPIKE RISK

Price pointed out that the collapse of coal prices from $125/t in 2011 has led to a spate of mining industry bankruptcies and divestments.  However, with investment in new mines all-but dried up, this was leaving prices vulnerable to spikes later in the decade

IHS expects an additional 50 million tonnes per year of import demand to emerge in the steam coal market between now and 2020, above 2015’s 905 million.

While demand was unlikely to pick up in the EU and US due to environmental policies and cheap gas, it is expected to expand in India and China.

“The future of coal is brighter than some people think,” Price said.

India’s plans to expand its coal-fired power station fleet will reinforce its status as the world’s leading market for internationally-traded coal.

Rather than curbing demand outright, India’s near-doubling of a coal tax in 2015 will merely drive demand for higher quality imported coal over domestic supplies, Price said.

Meanwhile, in China IHS projects a recovering economy will rebalance coal supply and demand, and any further measures to contain production beyond the 1 billion tonnes/year already announced could be a boon for the international market.

By Ben Garside – ben@carbon-pulse.com