What's causing price volatility, and will it last?
Andy Roberts is vice president, Coal Advisory Services, and Gary Hunt is vice president-Consulting and Advisory Services at Henwood, a Global Energy Decisions company.
Coal markets have changed dramatically in the last year, but uncertainty lingers over how permanent the changes will be. After relative stability in the 1990s, coal markets, like other energy commodities, have become increasingly volatile, although high prices should not be confused with increased volatility.
We have seen coal price volatility before. As recently as late 2000 and early 2001, coal prices rose to levels as high, and in some coal supply regions even higher, than today's prices. However, those coal price spikes always receded quickly to pre-spike norms, and volatility disappeared.
What are the key drivers of these coal markets? Why have coal prices risen so much, and how long will they remain at their lofty levels? The answers to these key questions help us understand the effect that coal markets have on power markets.