Trafigura sees higher thermal coal prices, 3-5% supply shortage in 2022

Pylons of high-tension electricity power lines are seen during sunset next to the GRES-1 coal-fired thermal power plant outside the town of Ekibastuz, Kazakhstan November 7, 2021. REUTERS/Pavel Mikheyev

NEW DELHI, March 8 (Reuters) - Global commodities trading firm Trafigura expects thermal coal prices to remain high in the near term due to an estimated supply shortage of 3-5% in 2022, a senior executive said on Tuesday.

Prices of thermal coal, typically used to generate electricity, have shot to record highs due to increased buying by Europe as sanctions on Russia have cut off the bulk of its gas supplies.

"On a fundamental basis, it looks to be very strong for coal. The supply constraints are for real," said Siddharth Choudhary, head of thermal coal for Trafigura in the Middle East, North Africa and Indian Ocean region.

"While demand has increased post-COVID, supply has not been able to pick up to meet demand," Choudhary said at the Engage 2.0 industry conference, adding Trafigura expected a 30 million to 50 million tonnes thermal coal shortage in 2022.

Higher coal prices are bad news as the world battles inflation with crude prices close to record highs due in part to U.S. sanctions on Russian oil. Electricity prices in Europe have shot up in the recent days due to fuel shortages.

"Russia with current sanctions looks like it will displace 80-90 million tonnes of coal on an annualized basis, a gap which South Africa, Indonesia or Australia cannot fill," Choudhary said, adding Europe's 2022 coal consumption was likely to inch closer to 2018 levels.

China could import more coal over the next two to three weeks due to higher local prices, but imports are likely to be flat by the end of the year, he said.

India's imports could fall by as much as a fourth but that would depend on higher production by state-run Coal India (COAL.NS), Choudhary said.

Choudhary said there were no alternatives as the prices of all fuels are high.

"Everything related to energy is in deficit. So there is not alternative. With the current crisis for Europe, coal looks to be the best option," Choudhary said.

Reporting by Sudarshan Varadhan Editing by Chris Reese

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