UBS warns potential 'super El Niño' could tighten thermal coal markets and lift prices

UBS has flagged the hazard of a "super El Niño" processing from mid-2026, which it says could tighten the seaborne thermal ember marketplace and propulsion prices higher, with Indonesian and Australian producers acceptable to benefit.

The World Meteorological Organisation expects an El Niño lawsuit to make successful the coming months, and immoderate scientists foretell it could beryllium the strongest this period based connected precocious Pacific Ocean aboveground temperatures.

UBS said specified events typically trigger aggravated and prolonged heatwaves crossed Asia, wherever coal-fired plants relationship for astir 70% of energy procreation successful India and astir 55% successful China and crossed the portion much broadly.

Higher request for aerial conditioning should assistance wide ember depletion and ember imports, portion successful Latin America and Africa, changes to rainfall patterns associated with El Niño tin trim output from hydroelectric dams, which supply a important stock of procreation successful some regions.

With planetary powerfulness systems already nether strain from the US-Iran conflict, UBS sees a hazard that the upwind lawsuit could compound existing proviso pressures.

The broker noted a imaginable constraint connected Indonesian proviso from caller export quotas, though feedback from a caller manufacture circuit suggested authorities are consenting to o.k. further quota allocations pursuing caller terms rises.

On robust ore, UBS said March 4th shipments from the large producers were broadly resilient and mostly successful enactment with oregon modestly up of expectations contempt upwind disruptions, with Rio Tinto Ltd (LSE:RIO, ASX:RIO, OTC:RTNTF), BHP Group Ltd (LSE:BHP, ASX:BHP), Anglo American PLC (LSE:AAL) and Vale each delivering coagulated operational performances.

Fortescue was much mixed, with coagulated haematite shipments offset by disappointment astatine its Iron Bridge magnetite project, starring to a guidance downgrade.

Iron ore prices person risen to $112 per tonne, supported by higher freight rates, with Australia-to-China shipping costs up $5 per tonne since the extremity of February and Brazil-to-China routes up astir $11 per tonne.

Chinese larboard inventories stay adjacent to all-time highs astatine astir 160 cardinal tonnes but person started to autumn seasonally, portion alloy exports lifted month-on-month successful April.

UBS holds neutral ratings connected BHP, Rio Tinto, Vale and Fortescue, and estimates spot 2026 escaped currency travel yields of 5% for BHP, 9% for Rio Tinto and 11% for Vale.