Despite the huge deployment of renewables, burning coal remains the preferred way of generating electricity worldwide, accounting for 35% of all electricity.As Western producers take advantage of record prices – with companies such as Glencore pledging to operate the mines until closure over the next 30 years – major coal consumers, India and China, have always growth on the agenda
The globe is in the grips of a climate crisis as temperatures soar and rivers run dry, and yet it’s never been a better time to make money by digging up coal.
Shockwaves in the energy market from Russia’s invasion of Ukraine mean the world is becoming increasingly dependent on the dirtiest fuel. And as demand grows and prices reach all-time highs, that means huge profits for the biggest coal producers.
Commodities giant Glencore Plc said core profits at its coal unit jumped nearly 900% to $8.9 billion in the first half, more than Starbucks Corp. or shoppingmode Nike Inc. in an entire year. Earnings from top producer Coal India Ltd. nearly tripled, also hitting a record high, while Chinese companies that produce more than half of the world’s coal saw profits more than double in the first half to a combined $80 billion.
Massive profits earn big paydays for investors. But they will make it even harder for the world to break the habit of burning coal for fuel, as producers scramble to extract additional tonnes and increase investment in new mines. If more coal is mined and burned, it would make the likelihood of keeping global warming below 1.5 degrees Celsius even more remote.
It’s a remarkable turnaround for an industry that has spent years mired in an existential crisis as the world tries to switch to cleaner fuels to slow global warming. Banks pledged to end the financing, companies divested mines and power plants, and last November world leaders nearly struck a deal to end its use.
Ironically, these efforts contributed to the success of charcoal producers, as lack of investment limited supply. And demand is higher than ever as Europe tries to wean itself off Russian imports by importing more sea coal and liquefied natural gas, leaving less fuel for other nations to fight over. Prices at the Australian port of Newcastle, the Asian benchmark, hit a record high in July.
The impact on coal miners’ profits has been staggering and investors are now cashing in. Glencore’s bumper earnings have helped the company boost shareholder returns by another $4.5 billion this year, with the promise of more to come.
Gautam Adani, Asia’s richest person, took advantage of a rush to India to secure import shipments amid pressure on local supplies. The revenue generated by his Adani Enterprises Ltd. jumped more than 200% in the three months to June 30, propelled by rising coal prices.
U.S. producers are also reaping bumper profits, and top miners Arch Resources Inc. and Peabody Energy Corp. say demand is so high at European power plants that some customers are buying the high-grade fuel typically used to make steel to generate electricity instead.
Skyrocketing profits threaten to become a political lightning rod as a handful of coal companies cash in while consumers pay the price. Electricity costs in Europe are at record highs and people in developing countries suffer daily outages because their utilities cannot afford to import fuel. Earlier this month, United Nations Secretary-General Antonio Guterres hit out at energy companies, saying their profits were immoral and calling for windfall taxes.
Coal advocates say the fuel remains the best way to provide cheap and reliable baseload power, especially in developing countries.
Despite the huge deployment of renewables, burning coal remains the preferred way of generating electricity worldwide, accounting for 35% of all electricity.As Western producers take advantage of record prices – with companies such as Glencore pledging to operate the mines until closure over the next 30 years – major coal consumers, India and China, have always growth on the agenda.
The Chinese government has instructed its industry to boost production capacity by 300 million tonnes this year, and the country’s top state-owned producer said it will more than halve development investment on the back of record profits.
Coal India is also likely to reinvest much of its profits in the development of new mines, under pressure from the government to do more to keep pace with demand from power stations and heavy industry.
China and India worked together at a United Nations conference in Glasgow last year to water down the language of a global climate statement calling for a ‘gradual reduction’ in the use of coal instead of a “phasing out”.
Back then, few would have predicted how expensive fuel would become. Just a year ago, the biggest international mining companies – excluding Glencore – pulled out of coal altogether, deciding the paltry returns were not worth mounting pressure from investors and climate activists.
When Anglo American Plc spun off its coal business and sold it to existing shareholders, a short seller, Boatman Capital, said the new business was worthless. Instead, the action – known as Thungela Resources Ltd. – has soared, gaining more than 1,000% since listing in June 2021, with first-half earnings per share about 20 times higher.
Glencore itself bought a Colombian mine from former partners Anglo and BHP Group. The nature of the deal and rising coal prices meant Glencore essentially got the mine for free late last year. In the first six months of this year, it made a profit of $2 billion from that mine alone, more than double the profit from all of its coal operations in the same period last year.
Earnings should continue to roll as analysts and coal executives say the market will remain tight.
“As things stand, we don’t see this energy crisis going away for some time,” Glencore chief executive Gary Nagle said.
Bloomberg