Theresa Smith reported that the global coal market has been on a rollercoaster ride the past three years. Demand plummeted during the pandemic, then surged with the economic recovery and the war in Ukraine. In 2022, coal use hit a record high, remaining the world’s leading fuel for electricity, steel, and cement production.

Despite being the world’s main source of CO2 emissions, coal use might be nearing its peak. The International Energy Agency (IEA) predicts a potential turning point within this decade, even under current policies. This is driven by a decline in coal use by developed countries and a slowing Chinese economy, which aims to peak its CO2 emissions before 2030.

However, uncertainties linger regarding the exact timing, level, and pace of the decline in coal consumption after the peak.

Can Coking Coal Thrive in a Shifting Energy Landscape?

A research firm, BMI, predicts Australian coking coal prices averaged around US$295 per ton in 2023 [source needed]. They forecast prices stabilizing at US$300 per ton in 2024 as demand steadies. However, in the long run, BMI expects coking coal prices to decline due to slowing global steel production and a shift towards cleaner steelmaking methods.

BMI anticipates two main factors driving down coking coal demand (and prices) in the long term: slower steel production in most importing countries (except India), and increased use of cleaner technologies like electric arc furnaces and green hydrogen in steelmaking.

The shift in the steel industry will decrease the need for coking coal, impacting the fossil fuel’s long-term demand and price outlook, according to Chowdhury.

Despite a long-term decline, Chowdhury anticipates coking coal prices to stay elevated compared to historical norms throughout 2024-2027. This is due to the current high price baseline established by the Ukraine war and continued tight global supply.

Navigating Coking Coal Supply and Risks

Chowdhury highlights that current global uncertainties pose risks to coking coal price forecasts. A potential downside could be a deep recession in developed economies, which would worsen already weak manufacturing, steel production, and construction sectors. This domino effect could significantly reduce coking coal consumption and put further downward pressure on prices. Additionally, a stronger supply outlook, leading to increased stockpiles, could also contribute to lower prices.

Chowdhury also sees an upside. A resurgence in Chinese construction and higher steel production could lead them to resume pre-2020 levels of coking coal imports from Australia. This surge in Chinese demand would significantly boost coking coal prices.

BMI predicts China’s coking coal demand to peak around the second half of this decade. Looking further ahead, they expect green hydrogen, produced from renewable sources, to become a major player in reducing emissions from steel production.

While Europe’s shift away from Russian energy sources caused a temporary increase in coal demand in early 2024, BMI reports a decline in European thermal coal consumption overall. This suggests Europe is leading the trend of weakening global coal demand.

A glut of coal in Europe, due to lower demand, is forcing some sellers to offload excess supplies to Asian and African markets, including Morocco, Senegal, and Guatemala. This puts downward pressure on global coal prices. Despite Europe’s decline, BMI anticipates a potential rebound in coal demand from China in the long term.

Chinese customs data reveals a surge in coal imports during the first eight months of 2023. These imports increased by 163% year-over-year, reaching 21.5 million tonnes by August.

Despite the significant increase in coal imports by China, Newcastle thermal coal prices remained relatively stable throughout the second half of 2023, hovering between US$130 and US$160 per tonne, explained Chowdhury.

China’s thermal coal imports rose due to a drop in hydropower generation. Hydropower output in southwest China fell 18% between mid-2022 and mid-2023, while fossil fuel power generation rose 7% in the same period. This shift towards fossil fuels to meet energy needs led to higher coal imports.

China prioritized coal at major government meetings in 2022 and 2023. This focus is significant because China’s power plants alone use a third of the world’s coal, according to the IEA. As a result, trends in China’s coal consumption will heavily influence global coal demand, Chowdhury stated.

Future thermal coal pricing

Despite uncertainties, BMI sticks to its long-term prediction: average coking coal prices will be US$170 per tonne in 2024, dropping to US$130 per tonne by 2027. They expect the EU’s swift transition to renewable energy sources to weaken coal’s grip on the European energy market. Even if the Russia-Ukraine conflict ends quickly, BMI believes the EU is committed to reducing reliance on Russian energy.

Globally, the EU’s fast-growing renewable energy sector will enable a drop in coal consumption. Similarly, China’s increasing reliance on renewables and climate targets will lead to lower coal demand, but only once the necessary power grid infrastructure is in place.

While China and India are expected to ramp up coal production, reducing their dependence on imports, there’s no significant growth anticipated from other major producers.

As energy trends move away from coal and climate concerns rise, companies are likely to divest (sell off) their coal holdings in the long term. This lack of enthusiasm for coal, especially thermal coal, extends to governments, banks, and even mining companies.

In January 2023, shareholders pushed Glencore for more transparency regarding its thermal coal production and spending. They expressed worries about the company’s climate objectives and the potential risks associated with its coal holdings, Chowdhury explains.

Chowdhury identifies three main downside risks for coking coal prices: a global recession, a faltering economic recovery in China, and a significant strengthening of the US dollar compared to 2022 levels.

South Africa: The Engine of African Coal

Despite a modest 4.4 million metric ton decline in African coal consumption in 2022 (reaching 187 million metric tons total), the International Energy Agency (IEA) attributes this decrease to ongoing problems with Eskom’s coal plants in South Africa. This drop follows a previous reduction in coal use due to the COVID-19 pandemic.

Slow economic activity and ongoing power cuts (loadshedding) in South Africa continued to dampen coal demand across Africa in 2023. However, the IEA predicts a reversal in this trend by 2026, with total African coal consumption rising to 193 million metric tons in the next three years. This projected increase is attributed to an improved outlook for Eskom’s coal-fired power plants.

Despite South Africa dominating African coal consumption (84% in 2022) and Eskom’s power station issues hindering overall demand, the IEA still forecasts continued coal use in Africa for the foreseeable future.

South Africa’s “Just Energy Transition” plan, supported by the World Bank, aimed to begin by shutting down the Komati coal plant (operating for 56 years) in October 2022. However, the International Energy Agency (IEA) reports that due to critical energy supply shortages, South Africa’s climate policy body recently proposed delaying the retirement of coal plants, without a clear new timeline.

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