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Thermal coal prices have experienced a significant drop, reaching nearly a two-year low, and this downward trend is expected to continue as supplies normalize and improve in 2023, according to the World Bank. While average annual coal prices are predicted to decrease this year compared to 2022, they are projected to remain higher than the five-year average. The Australian Office of the Chief Economist also anticipates a gradual easing of prices for coking or metallurgical coal used in steel production, while rates for thermal coal used in electricity generation are expected to decrease further.

For instance, Newcastle coal futures on the Intercontinental Exchange in New York have declined from $388.82 per tonne on January 1 to $145.10 per tonne. Similarly, hard coking coal prices on the Dalian Commodity Exchange dropped from 2,075 Chinese yuan ($290.24) to 1,401 yuan ($195.97) for the third-month contract. The escalation of thermal coal prices to over $400 and metallurgical coal prices to $600 occurred following the outbreak of the Ukraine war last year.

Various factors contribute to the price decline, including subdued economic recovery in China, subdued industrial activity in manufacturing and construction sectors, and record-high levels of domestic coal inventory in China. However, the end of the La Niña cycle is expected to enable waterlogged mines, disrupted terminals, and rail to resume full production in Australia, as highlighted by the Australian Office of the Chief Economist.

While prices are influenced by shifts in demand and factors such as the global economic outlook, Covid-related concerns, the Ukraine war, consumer debt levels, and weaknesses in global real estate markets, the Office of the Chief Economist believes that thermal coal prices will continue to decline due to improved weather conditions and market adjustment to the war in Ukraine.

The World Bank and the Australian Office of the Chief Economist predict a decrease in both thermal and metallurgical coal prices and demand in the medium term. However, short-term increases in coal demand may be compromised if China's economic take off fails to materialize and global growth remains slower than expected.