Key Highlights

Thermal coal futures fell below $145 per ton, pulling back from near three-year highs as the US-Iran peace agreement reopened the Strait of Hormuz and reduced the energy supply disruption that had driven Asian and European importers toward coal as an LNG substitute.

The lifting of sanctions on Iranian oil exports under the deal and Indonesia's earlier export control tightening had together created the conditions for coal's multi-year price surge, but improving LNG availability is now reversing the fuel-switching dynamic.

Thermal coal futures dropped below $145 per ton on Friday, extending their retreat from the near three-year highs reached earlier this month as the US-Iran interim peace agreement fundamentally altered the energy supply landscape that had propelled coal demand and prices to elevated levels.

The agreement's core provisions — reopening the Strait of Hormuz and lifting sanctions on Iranian oil exports — represent a direct reversal of the supply disruption that had forced energy importers across Asia and Europe to seek alternatives to Persian Gulf natural gas. The extended conflict had pushed coal to the forefront as a reliable available substitute for disrupted LNG, driving significant demand increases particularly among Asian power utilities.

Japan and South Korea, two of Asia's largest coal importers, had been among the most prominent fuel-switchers during the conflict period, notably ramping coal consumption in their thermal power sectors as Persian Gulf gas supplies became unreliable. The restoration of Hormuz transit is now expected to gradually ease this emergency demand as LNG availability improves.

Indonesia's recent tightening of export controls on key commodities, including thermal coal, had added a significant supply-side shock earlier this month that sent prices surging. As the world's largest coal exporter, Indonesia's policy actions have an outsized impact on seaborne coal markets, particularly the benchmark Newcastle-grade thermal coal that serves as the price reference for Asian utilities.

The evolving situation creates a potentially powerful bearish double-effect for coal: demand support from fuel-switching is eroding as Middle East gas supply normalises, while the supply disruption from Indonesia's export controls is likely to ease over time. Each percentage point of LNG supply restoration from the Gulf reduces the emergency demand premium that has underpinned coal's elevated price levels.

For coal market participants, the key near-term variable is the pace of LNG supply restoration through the Hormuz corridor and the speed at which major Asian importers can rebuild gas procurement schedules and storage levels to shift away from emergency coal purchases.

 

Question: Why did the Strait of Hormuz closure cause thermal coal prices to spike?

Answer: The Strait of Hormuz is the world's most critical LNG transit route, with a significant proportion of global liquefied natural gas exports passing through it. When the strait was disrupted during the conflict, major Asian energy importers — particularly Japan and South Korea — could not receive their contracted Persian Gulf LNG supplies, forcing them to rapidly increase coal consumption as the most readily available substitute fuel for power generation.

Question: Will thermal coal prices continue to fall as the Hormuz situation normalises?

Answer: Further price declines are possible if the LNG supply recovery through Hormuz proceeds as expected and reduces emergency coal demand from Asian importers. However, the pace and duration of the decline will depend on how quickly Iranian LNG capacity and Gulf pipeline gas can be mobilised, whether Indonesia eases its export controls, and the seasonal demand backdrop in key consuming markets across Asia and Europe.

Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Readers should conduct their own research or consult a qualified financial adviser before making any investment decisions.