UBS Sees 65% Chance of Super El Niño Driving Coal Prices Over 20%
UBS assigns a 65% probability to a super El Niño developing by late 2026 and forecasts a 25 million-tonne supply deficit in global thermal coal markets next winter. It warns benchmark Newcastle coal prices could climb over 20%, boosting Rio Tinto’s thermal coal segment margins.
1. UBS Probability and Market Forecast
UBS assigns a 65% probability to a super El Niño developing by Q4 2026, driven by anomalous Pacific sea surface temperature rises. The bank projects this weather event will curtail coal output in key exporting regions, creating a 25 million-tonne shortfall in global thermal coal supply over the upcoming northern winter.
2. Price Impact and Rio Tinto Implications
UBS warns that a tightened supply-demand balance could send benchmark Newcastle coal prices above $140 per tonne, representing a rise of over 20%. Such a surge would enhance Rio Tinto’s thermal coal segment margins and could contribute materially to the company’s full-year earnings, partially offsetting slower growth in its iron ore division.