011. Coal at the crossroads: is it really the end of an era?

“Welcome to “I LIKE TO MOVE IT”, the Rulmeca podcast that explores the latest trends and innovations in the world of material handling world. 

I’m your host, Mr R, and in this episode we’re diving deep into the intricate dynamics of the global coal industry, examining its past, present, and potential future. Our insights are drawn from a variety of sources, including report from the International Energy Agency (IEA). So, let’s get started.   

Analyzing global coal market trends over the past three years reveals a picture of significant volatility, peaking in 2022(*)  with coal demand reaching the highest level ever recorded. This dynamic has been driven by a complex array of factors, including global economic fluctuations, national energy policies, and supply and demand shocks. Despite coal remaining the primary source of anthropogenic CO2 emissions, its dominant role in electricity generation, as well as in steel and cement production, maintains it as a cornerstone of the global economy. 

In 2022, global coal demand reached an unprecedented peak, highlighting the ongoing dependence of many key sectors on this fossil energy source. However, the current energy landscape is facing a potential historic turning point, with projections from the International Energy Agency indicating a possible peak in coal demand within this decade. This forecast is primarily supported by the structural decline in coal use in developed economies and a shift in China’s economic outlook, committing to peaking CO2 emissions before 2030. 

Detailed analysis reveals that, despite the efficiency of coal supply chains and market integration, reserve capacity remains limited. This factor, combined with rising natural gas prices and adverse weather conditions affecting production in key countries like Australia, has contributed to rising coal prices. Furthermore, export restrictions imposed by Indonesia to address domestic shortages have further tightened the low and medium calorific value coal market. 

Projections indicate that, while 2023(*)  may see a slight increase in global coal demand, a downward trend is expected to begin from 2024, driven by the growing penetration of renewable energies. This suggests that the peak of coal consumption may occur in 2023(*) , with significant implications for energy transition strategies and global climate goals. China, in particular, will play a decisive role in shaping future global coal demand, while India and ASEAN countries may partially offset expected declines in the European Union and the United States. 

DEMAND DYNAMICS 

In 2023, we witnessed a decline in coal demand in most advanced economies, with the European Union and the United States recording record annual declines of 23% and 21%, respectively. This significant reduction in coal consumption in developed regions was more than compensated by an increase in demand in developing countries, particularly in Asia. 

China, India, Indonesia, Vietnam, and the Philippines collectively account for over 70% of global coal demand, marking a stark contrast to trends observed in advanced economies. Specifically, coal demand in China is expected to increase by 220 million tonnes (Mt) or 4.9%, while in India, an increase of 98 Mt or 8%, and in Indonesia by 23 Mt or 11%. These increases reflect robust growth in coal-fired power generation, driven by rapidly rising electricity demand and lower-than-expected hydroelectric production. 

2023(*) is expected to set a record in global coal demand, reaching approximately 8,536 Mt, with a marginal increase of 1.4% compared to the previous year. This increase, albeit slight, highlights a continued dependence on this energy source despite growing environmental pressures and changes in global energy policy. 

The landscape of coal demand is complex and differentiated.  

While advanced economies are rapidly reducing their coal consumption, partly due to increased energy efficiency, coal plant closures, and a greater reliance on renewable energies, developing countries are increasing their use of coal to support economic growth and infrastructure expansion. This gap in coal dependence could pose significant challenges for international climate dialogue, given the urgent need for a rapid global reduction in coal use to achieve climate goals. 

Looking ahead, the “Coal 2023” report predicts that the trend of declining coal demand will begin to manifest from 2024, with China continuing to play a decisive role in defining the trend of global coal demand.  

An increase in renewable energy growth relative to overall electricity demand growth should induce a downward trend in global coal consumption. These dynamics underline the critical importance of energy and climate policies in shaping the future of the global coal market. 

THE SHIFT TO ASIA 

The accelerating shift of the coal market towards Asia is highlighted by the growing influence of China, India, and ASEAN countries, which are redefining the global landscape of coal consumption. China dominates the coal market more than any other country for any other fuel, consuming more than half of the world’s coal, producing as much, and alone accounting for almost a third of global coal trade. This dominant position makes it the world’s largest importer.  

However, the impact of India and ASEAN is growing, further concentrating the coal market in Asia. In 2000, advanced economies accounted for nearly half of global coal consumption (48%), while China and India together accounted for 35%.  

Since then, coal consumption has decreased in the European Union since the 1980s and in the United States since the 2000s. Consequently, by 2026, China and India are expected to account for more than 70% of global coal consumption, while the European Union and the United States will each account for about 3%. This growing gap in coal reliance among countries could present challenges for future international dialogue on the need for rapid global reduction in coal use to achieve climate goals. 

Energy security has risen to the top of the political agenda following market disruptions caused by the Covid-19 pandemic and Russia and Ukraine war.  

For China and India, domestic coal production has long been the cornerstone of energy security policy. In recent years, both countries have struggled to keep the lights on during periods of high electricity demand, even before these shocks, due to coal shortages and high prices. As a result, both governments have stepped up efforts to increase coal production since October 2021. 

This scenario underscores a turning point in the global energy landscape, with Asia increasingly asserting itself as the gravitational center of coal consumption. This transition towards Asia, led in particular by China and India, reflects not only economic and development dynamics but also global political and environmental challenges related to energy resource management and combating climate change. 

PRODUCTION TRENDS 

The increase in coal production in major producing nations, specifically China, India, and Indonesia, is a phenomenon that merits detailed analysis to fully understand its implications on the global energy landscape. Coal production, despite environmental pressures and the growing emphasis on renewable energies, has continued to reach new highs in these nations, highlighting their crucial role in providing energy security and supporting economic growth. 

China, being the world’s largest consumer and producer of coal, has maintained its dominant position in the global coal market. Not only does it consume more than half of the coal produced globally, but it is also the largest importer, accounting for almost a third of global coal trade. This dependence on coal as a primary energy source has prompted the Chinese government to intensify efforts to increase domestic production, particularly after challenges posed by coal shortages and high prices in recent years. These efforts are highlighted by increased production in the provinces of Shanxi and Inner Mongolia, which have surpassed the 1 billion tonnes  threshold in recent years. 

India: India has also ramped up its coal production, underscoring its position as a cornerstone of the country’s energy security policy. With rapidly growing domestic demand, both for industrial consumption and power generation, India has faced periods of high electricity demand, exacerbated by coal shortages and high prices. The Indian government has therefore strengthened measures to increase coal production, with projections indicating surpassing the 1 Bt production threshold by 2024. 

Indonesia, a major coal exporter, has significantly increased its production in recent years, spurred by high international prices and growing regional demand. Indonesian production is expected to reach 700 million tonnes  in 2023 for the first time, underlining its key role in the Southeast Asian coal market. 

These production trends reflect a complex challenge: while energy security remains an absolute priority for these growing economies, increased coal production raises critical issues regarding environmental sustainability and CO2 emissions reduction goals. Managing these contrasting dynamics, where energy security must be balanced with the urgency of addressing climate change, represents one of the most pressing issues in the current global energy landscape. 

COAL TRADE DYNAMICS 

European imports collapsed in 2023 due to low demand and abundant stocks, while Japan, Korea, and Chinese Taipei reduced their imports in line with lower coal demand. 

From the supply side, Indonesia has confirmed itself as the most flexible exporter, reaching almost 500 million tonnes  of exports in 2023, a level never before achieved by any country.  

Australia will increase its exports by 10 Mt as disruptions induced by the La Niña phenomenon in past years have decreased. Russia’s efforts to replace its former European energy clients continue, with about half of its exports in 2023 directed towards China, up from less than a quarter in 2021. 

This detailed overview of coal trade in 2023 highlights the complex and changing dynamics of the global coal market, influenced by economic, political, and environmental factors. Trade trends reflect significant changes in energy policies and global demand, with profound implications for coal producers and consumers worldwide. 

PRICE FLUCTUATIONS 

Throughout 2022, international coal prices reached unprecedented levels, primarily due to the surge in natural gas prices resulting from Russia and Ukraine war. This event not only destabilized the market, introducing a war premium, but also highlighted the inadequacy of coal supply, which suffered due to adverse mining conditions and infrastructure bottlenecks. Coal supply chains, although generally efficient and well-integrated, have shown to have little reserve capacity. On the other hand, the rise in gas prices drove up coal-fired power generation in many countries, just as economies continued to recover from the pandemic. South Africa continued to struggle with infrastructure deficiencies that hindered coal production. Moreover, the European Union’s ban on Russian coal and a temporary export ban imposed by the Indonesian government in January 2022 to address internal shortages further tightened the low and medium CV coal market. 

Thermal coal prices showed significant volatility between 2021 and 2023. Until the end of 2021, price markers for high CV coal from Australia, in the European Union, and at the ports of southern China showed similar patterns. However, after October 2021, when China increased its production, price markers for Australia and the European Union on one hand, and China on the other, diverged significantly. In March 2022, prices for Australian and EU coal reached unprecedented peaks, surpassing 400 USD/ton, fueled by tight markets and the destabilizing impact of Russia and Ukraine war.  

In contrast, thermal coal prices in China embarked on a lower price path, thanks to abundant domestic supply that eased the market segment with a CV of about 5,500 kcal/kg. After briefly surpassing 200 USD/ton in March, prices remained between 150 USD/ton and 180 USD/ton until October 2022, before starting a steady decline and reaching a level of 100 USD/ton in March 2023, still about 20 USD/ton above pre-crisis levels. 

In the third quarter of 2023, prices for high CV coal from Australia began to rise again, driven by increased demand from Japan to replenish coal stocks. However, price differentials between various coal qualities remained well above pre-crisis levels, with prices for Australian met coal registering a notable increase, surpassing 350 USD/ton in September 2023, due to an increase in demand from India and China, the latter dealing with temporary mine closures after recent incidents in Shaanxi. 

These developments highlight the complexity of the global coal market, influenced by a range of factors including national energy policies, adverse weather conditions, changes in supply and demand dynamics, and geopolitical tensions. Coal price fluctuations have significant implications not only for coal producers and consumers but also for global energy transition strategies, underscoring the importance of diversifying energy sources and increasing energy efficiency. 

THE ROAD AHEAD 

In 2022, global coal demand reached a new historical high of 8,415 megatonnes , with a 4% increase compared to the previous year. This growth was mainly supported by increased demand in countries heavily reliant on coal,  along with higher gas prices and generally weaker nuclear and hydroelectric power production, which drove up demand for coal in power generation. Coal demand for power generation increased by 4% to 5,687 Mt, while coal use for non-energy purposes grew by 3.7% to 2,728 Mt. 

The trend of global coal demand is expected to begin declining from 2024, with growth in India and ASEAN countries offsetting declines in the European Union and the United States. An increase in renewable energy growth exceeding overall electricity demand growth is expected to induce a downward trajectory in global coal consumption, suggesting that the peak of coal consumption may occur in 2023. 

CONCLUSION 

In the context of global energy evolution, the forward-looking analysis on coal highlights a critical turning point in its use as a primary energy source. 2022 marked a record in coal demand, reaching 8,415 megatonnes , with an annual increase of 4%. This growth was primarily fueled by a significant increase in demand in countries heavily reliant on coal. 

2023(*) is expected to be the year when global coal demand reaches its peak, with an anticipated increase of 1.4% compared to the previous year, bringing the total to approximately 8,536 Mt.  

This forecast signals a slowdown in the growth of coal demand, attributable to uncertain global economic prospects and the weakening of factors that previously stimulated coal-fired power generation.  

Despite this slight increase, a declining trend in global coal demand is expected to begin from 2024. This transition will be driven by the growing penetration of renewable energies, expected to surpass overall electricity demand growth, signaling the start of a decline in global coal consumption. 

This dynamic highlights the growing gap between regions in terms of coal dependence, with significant implications for international dialogue on energy and climate policies. The challenge will be to balance energy security and economic growth with the urgency of reducing CO2 emissions and accelerating the transition towards cleaner and more sustainable energy sources. 

In conclusion, the future trajectory of coal in the global energy mix is marked by uncertainties and significant challenges. Decisions made today in terms of energy policies, infrastructure investments, and technological development will have profound implications on the energy landscape of the coming decades. Effective management of this transition, minimizing negative economic and social impacts, will require concerted effort at the global, national, and local levels, as well as continuous innovation in the energy sector. 

As we conclude this episode, the global coal industry stands at a pivotal crossroads. The decline in demand signals a necessary shift towards sustainability, while the unexpected resilience in 2023 poses questions that demand careful consideration. The stories of coal miners and the urgency of a just transition remind us that the energy transition is not just about numbers but about the people and communities affected.  

Thank you for joining us on this episode of “I LIKE TO MOVE IT”, a Rulmeca Podcast.   

Thank you for your attention and I look forward to seeing you next time to explore new trends and the most interesting developments in the world of material handling.  

Take care and keep being amazing!

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