Coal Traders Turn to Private Finance as High Demand Lifts Prices

(Bloomberg) — Coal buyers are turning to private financing to keep shipments going after a European ban on Russian imports sent prices quintupling.

Most readings are from Bloomberg

Russia accounted for almost half of the European Union’s coal imports in 2020, but all purchases stopped in August after the blockade was ordered for the war in Ukraine. That increases trade as European consumers search the world for alternative resources to supplement energy shortages, causing prices to rise.

The rally has been a problem for retailers, who have been under pressure as banks have pulled back from investing in coal-fired power plants in recent years. With each shipment now worth more, remittances have become trickier, pushing customers into private finance – which often charges high interest rates.

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“Many of the banks and insurance companies will not touch it, so customers are coming to the market again,” said Peter Ryan, managing director at private equity fund Goba Capital. Goba has more than $500 million in pipeline assets — mostly in coal — according to Ryan.

With Europe suffering its worst energy crisis in decades, many countries have scaled back plans to phase out coal, using fossil fuels as gas prices soar amid supply shortages.

High demand for harmful commodities — and a large supply of consumer goods willing to pay to obtain credit — has supported an increased willingness to pay in bank transactions.

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Commodity financing is usually done on a secured basis, which means that the lending bank has the right amount of money at the time of shipment — making it a less expensive transaction. But while banks will charge a small number of small coins for carrying metal or oil, the fund offers interest rates in the mid-teens for buying coal, according to Goba’s Ryan.

Such financial opportunities attract investors who focus on commodities, but also those who focus on full-fledged business finance.

“We’re not hard-line marketing experts,” Ryan said. “It’s just this new reality, especially in coal, where higher prices lend themselves to higher yield.”

Coal prices are so good that the market can withstand sky-high lending rates, according to Chris Scott, chief financial officer of Novum Energy Trading Corp., which specializes in oil products and also buys U.S. coal. in Colombia.

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“The money is there for a reason – the margin is there to support other capital costs,” Scott said, adding that the big spending is going through, and the energy providers end up paying the customers for it. warm them up.

“The reality is that at the end of the day it’s the man in the street who pays for it. The chain is always passed.”

Most of the reading comes from Bloomberg Businessweek

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