Column: Iran war gives small boost to thermal coal, further gains possible

(The views expressed here are those of the author, Clyde Russell, a columnist for Reuters.)

The price of seaborne thermal coal in Asia has risen in response to the US-Israeli war on Iran. However, the gains are modest compared to those seen in the aftermath of the Russian invasion of Ukraine.

The ‘closure of the Strait of Hormuz’ has resulted in a 20% reduction of global supplies of super-chilled fuel.

The price of seaborne thermal coal increased by as much as 78% in the wake of Russia’s invasion into Ukraine in February 2022. Despite the fact that there was little disruption of supply, the main effect was a rerouting of flow as Western buyers shunned Russian shipments.

China has seen a significant drop in Asia’s LNG imports since the beginning of the Iran War. The country has reduced arrivals, and instead turned to its own natural gas and pipelines, as well as coal.

The LNG supply has been sufficient to meet the demand of importers from other major Asian countries.

Thermal coal has become more competitive as the price of LNG (both spot and long-term) and LNG linked to oil rises.

In Asia, there are three types of thermal coal: high-quality Australian, which is mainly purchased by Japan, South Korea and Taiwan; mid-quality Australian or Indonesian, which is primarily bought by China and India; and lower-grade Indonesian, which is also favored by China and India.

The highest-quality Australian coal has performed the best since the beginning of the Iran conflict. On May 1, the benchmark weekly index for fuels shipped from Newcastle Port ended at $130.81 per metric ton, up 12.6% compared to the week before the Iran war.

Argus, a commodity price reporting agency, assessed mid-quality Australian coal as having an energy content (kcal/kg), of 5,500 kilocalories a kilogram. This is up 11.7% from the beginning of the Iran War.

Last week, Indonesian coal containing 4,200 kcal/kg of energy was valued at $61.82 per ton. This is an increase of 11.6% from February 27.

The data show that higher-grade fuels have modestly outperformed mid- and low-quality coal. This is because Japan and South Korea, the only two major economies in Asia capable of switching between coal and LNG for electricity generation.

The import data indicates that neither country has yet to make a meaningful switch between fossil fuels.

Fuel switching

According to analysts DBX Commodities Japan’s thermal coal imports were 7.89 millions tons in April. This is down from 9.10 in March but above the 7.69 in the same month of 2025.

DBX data shows that South Korea imported 5.70 million tonnes in April, a decrease from 5.81 millions in March, but a rise over the 4.12million tons imported in April of last year.

Despite a slight increase in demand from last year, imports to Japan and South Korea in April were still well below their five-year average.

It is a question of whether Japan and South Korea are going to switch more towards coal in the coming months. This is especially true as summer peak demand approaches.

The current price of thermal coal and LNG is a strong financial incentive. According to LSEG ‘data, it is cheaper to use coal in Japan when the LNG price exceeds $10.24 for a million British thermal unit (mmBtu) while the price for South Korea is $10.45.

Spot LNG delivery to North Asia Coal is cheaper than spot LNG cargoes.

LSEG data shows that last week the price for this LNG was $10.06/mmBtu, which is still cheaper than coal.

Brent futures are up in recent days, as crude markets become more concerned about the Strait of Hormuz not reopening anytime soon. Brent ended Monday at $114.44 per barrel, up around 32% from the post-war low of $86.09 on April 17.

Using current Brent futures ‘pricing’, LSEG data indicates that the price for Brent-linked LNG will be $12.73/mmBtu in Japan by the start of July. This is high enough to encourage gas to coal switching.