Surging coal prices amid high demand and a lack of Russian coal imports has pushed European traders toward private funds to finance coal shipments, traders and private fund managers tell Bloomberg.
Coal prices in Europe have jumped since the EU enforced an embargo on imports of Russian coal in August. Faced with energy shortages and soaring natural gas prices, many major economies in Europe, including Germany and the UK, have restarted some of the stand-by coal-fired power generation capacity. With rising prices and rising demand for coal, trades in the commodity have become much more expensive.
Banks and insurance firms have not been keen on financing transactions in coal due to ESG concerns. This year’s spike in coal prices has made the financing for coal shipments even more difficult, and traders have started to turn to private finance funds. Those funds charge higher than banks.
“Most of the banks and insurance companies won’t touch it, so traders are coming to the alternative market,” Peter Ryan, managing director at private fund Goba Capital, told Bloomberg.
Coal is the primary commodity in Goba Capital’s lending pipeline in commodities, Ryan said.
According to Chris Scott, chief financial officer of Novum Energy Trading, the higher costs of coal shipments are typically passed down to the customers by the energy providers.
Despite the much more expensive coal and coal traders, Europe has restarted some mothballed coal-fired units this year, looking to secure energy supply and keep the lights and heating on this winter.
For example, Uniper will keep a unit at a coal plant in the UK available until the end of March 2023, six months after the original date for closing the unit which was September 2022. This extension was driven by the need to boost the UK energy supply through what will be a difficult winter.
By Tsvetana Paraskova for Oilprice.com