As the Northern Hemisphere winter quickly approaches, Asian thermal coal prices have climbed to two-year highs and could be on the cusp of a major breakout as utilities stockpile the dirty fuel amid disruptions to natural gas and crude product markets caused by the war in Ukraine and the Strait of Hormuz disruption.

Newcastle coal futures, an Asian benchmark, are up more than 40% on the year and could surge even higher if the $150-a-ton level is sustained.

Prices on Tuesday closed at their highest levels since August 2024.

The combination of Ukraine decimating Russian refineries with drone attacks and the Strait of Hormuz disruptions to energy flows has sparked a global refining crisis that has encouraged utilities to switch from higher-priced natural gas and heating oil to cheaper alternative fuels such as coal.

Morgan Stanley analysts led by Amy Gower wrote in a note last week that the global refining crisis has made "the long-term outlook for thermal coal demand more resilient." They raised their long-term outlook for Newcastle export prices by 4% to $125 a ton.

According to Bloomberg, China's coal output has fallen more than 3% in the first eight months of the year after a deadly mining accident earlier this year triggered safety inspections and prolonged shutdowns. 

Wood Mackenzie analyst Hangyu Li expects more Chinese mines to get the green light to restart, but any new production would come as a lag.

"We expect more mines to gradually win approval to restart after about four months of suspension, but a quick rebound on production in the near-term is unlikely," Li wrote in the note.

Possible relief from a harsh winter could come from above-normal temperatures forecast across Asia because of a record-breaking El Niño, which would ease heating demand.