Citi: Coal May Replay the 2002 Rally — Bullish on Coking Coal and Thermal Coal
Claire Weston
Citi sees conditions for a repeat of coal's 2002 rally, with coking and thermal coal prices already in the marginal-cost zone as supply cuts, demand gains, and inventory drawdowns converge.
Why does Citi compare coal to 2002?
Coal's coefficient of variation (how widely prices swing relative to their average) over the past seven years is the highest among all major mined commodities. This means → when a rebound starts, coal has the most room to spike.
Citi characterizes coal as a commodity where "90% of the profit is made in 10% of the time," with a rally cycle roughly every three to five years.
In plain terms = coal does not earn steadily — it stays quiet for years, then surges. With prices now at marginal cost, the risk-reward is asymmetric: limited downside, outsized upside.
What happened on the coking-coal supply side?
On May 22, 2026, a major gas explosion at the Liushenyu mine in Shanxi province became China's worst mining disaster in 15 years, forcing widespread mine shutdowns for safety inspections across the province.
Citi notes that if June inspections shut more mines, Chinese coking-coal output will fall sharply, boosting demand on the seaborne market.
This reflects a recurring pattern: Chinese mine accidents trigger industry-wide safety crackdowns, and the resulting supply shock transmits quickly to international seaborne trade.
Where is the new coking-coal demand coming from?
The Iran war has destroyed steelmaking capacity, creating structural incremental demand. Iran was the world's tenth-largest steel producer, relying mainly on DRI — direct reduced iron, a process that uses natural gas instead of coke to make iron.
Citi estimates that if 70% of Iran's steelmaking capacity is destroyed, roughly 15 million tonnes of steel previously exported must be replaced elsewhere, translating directly into about 8 million tonnes of additional coking-coal demand.
Over the medium to long term, India is the biggest growth engine: coking-coal imports grew at roughly 2.3% annually over the past four years, while steel output grew at 8.7% — a widening gap. This means → India's domestic coking coal increasingly cannot keep up with steel expansion, deepening import dependence.
Citi adds that India's coking-coal destocking from 2022 to 2025 already exceeds the stockpiling from 2020 to 2022, signaling a clearer inventory-cycle turning point.
What is the logic for thermal coal?
Since the Iran war began, LNG prices have risen roughly 80%, while Newcastle and Richards Bay benchmark thermal-coal prices are up only about 23%. The widening gas-coal spread favors fuel switching. This means → power generators have a strong incentive to switch back to coal because it is now far cheaper relative to gas.
On the supply side, Indonesia produced 790 million tonnes of coal in 2025, but the government has approved only about 580–600 million tonnes in quotas so far. Even if the cap is raised to 700 million tonnes, output would still fall roughly 11% year-on-year.
El Niño-driven heatwaves across Asia and declining hydropower generation add further support to coal demand.
Do the inventory numbers back this up?
India's coal stockpile stood at 46.7 million tonnes at end-May 2026, but it fell 9.5 million tonnes over the prior two months — the steepest two-month drop since the June-to-August 2020 pandemic lockdown. May inventories were down 18% year-on-year and 8% month-on-month, far exceeding the historical May seasonal decline of about 2%.
China's coal inventories have retreated from their highs to the lowest seasonally adjusted level in four years, with further drawdowns expected this summer.
In plain terms = stockpiles in both top-consuming nations are draining fast, yet prices have barely moved. Citi sees this as a timing window — whether drawdown speed accelerates enough over the next 6 to 12 months to trigger a price rebound is the key metric to watch.
Which stock does Citi recommend?
Citi's top pick is Glencore — the world's largest seaborne thermal and coking-coal producer and trader, with an exceptionally high EBITDA-to-free-cash-flow conversion rate in its coal business.
Glencore has historically returned most of its free cash flow to shareholders via special dividends or share buybacks.
Citi raises its target price for Glencore to £7.7 per share, implying a FY2027 free-cash-flow yield of 13.8%, EV/EBITDA of 4.6x, and a P/E of 9.7x.
Content is for reference only, not financial advice.