The 2020 collapse in coal demand turned out to be smaller than anticipated Even before the pandemic, coal faced a difficult outlook for 2020. Demand was being squeezed by a mild winter in the Northern Hemisphere, low natural gas prices and strong renewables growth. When electricity demand and natural gas prices plummeted as the Covid-19 crisis escalated, coal-fired power generation bore the brunt of the impacts. Reduced industrial activity also hit coal demand, although in a more limited way. In the early months of the crisis, a double-digit annual decline in global coal demand looked plausible. But economic recovery in China came sooner and stronger than initially expected, with year-on-year growth resuming as early as in April. With economic recovery following elsewhere and a cold snap in December in Northeast Asia, global coal demand fell by 4.4% in 2020 – the largest decline in many decades but less than initially expected. The regional disparities were large. Coal demand grew by 1% in China in 2020 but dropped by nearly 20% in the United States and the European Union – and by 8% in India and South Africa.
We forecast that US coal production will continue to expand in 2022 before resuming its declining trajectory, which will lead to 484 Mt of output in 2024. The return to last decade’s production downturn reflects the anticipated drop in North American and European coal demand.
Furthermore, at the behest of the Czech Republic, in September 2021 the European Court of Justice ruled that operation of the Turow opencast lignite mine near the Czech border must cease because it endangers water supplies. Poland has rejected closure of the opencast mine on grounds of energy supply security, and bilateral negotiations are currently under way between the two countries. Through 2024, these decisions will have only a limited impact on Poland’s coal production, which is expected to decrease by 8 Mt to 99 Mt.
South Africa accounted for around 94% of Africa’s coal production in 2020, amounting to 247 Mt, down 4.4% from 2019. In 2021, its output is expected to decrease slightly to 244 Mt. Logistical problems, including civil unrest, train derailments and ongoing maintenance work on the export line to Richards Bay reduced coal exports, and domestic demand recovered only partially. Through 2024, South African coal production is expected to remain stable at the 2021 level, as a recovery to 2019 output is being prevented by the withdrawal of major mining companies such as Anglo American, as well as by cuts to planned domestic coal-fired power capacity. The only major new mine likely to become operational by 2024 is Seriti’s New Largo mine, for which construction began in 2020. Mozambique, Africa’s second-largest coal producer, had total production of 7 Mt in 2020, down from 11 Mt in 2019. The country was hit hard by the Covid-19 pandemic in 2020 and 2021, but coal production is expected to remain stable. Coal India conducts coal exploration in the country, and Ncondezi Energy has announced a 300-MW coal mine/power plant project, but no investment decisions have yet been made. Also, with Vale preparing to discontinue coal exploitation in Mozambique this year, future coal production in the country will depend on the operation’s new ownership. We expect coal production to increase, as current production capacity is not being fully utilised, with output in 2024 amounting to ~11 Mt.
For the next three years to 2024, we foresee global coal trade stability, with thermal coal volumes declining 1.9% per year and met coal increasing 2.8% annually. Thermal coal trade will be altered as China and India – the world’s two largest importers – raise domestic production to reduce import reliance, and as the European Union, Japan and Korea reduce their coal-fired power generation. Conversely, we expect higher volumes of met coal to be traded because China and India – the countries with the highest consumption – cannot raise their domestic production substantially, and because met coal demand for steel production remains high globally.
In 2020, 978 Mt of thermal coal were traded internationally – a 124-Mt drop from 2019 due to declining demand during the global pandemic. Approximately 916 Mt (94%) of this trade was seaborne. The share of internationally traded thermal coal in global coal consumption fell slightly to 15% in 2020. Annual data on thermal coal imports and exports are different, partly due to China’s trade practices and import quotas. Because of China’s quotas, ships that left ports at the end of 2019 were not discharged and registered as imports in China until January 2020. Therefore, higher values for imports than exports were recorded for 2020. Most seaborne thermal coal trade occurs in the Asia Pacific region, where the largest importers and exporters are both concentrated. Indonesia provided 41% of globally traded thermal coal in 2020, and Australia ranked second with 20%, increasing its market share from 19% in 2019. Other important exporters are Russia (18%), South Africa (8%), Colombia (5%) and the United States (2.5%).
Although the met coal market has only one-third the volume of the thermal coal market, international trade is more important for met coal. In 2020, about 318 Mt or 29% of total met coal consumed was imported, of which 286 Mt (88%) was acquired through seaborne trade. Met coal trade declined 33 Mt or 9% from 2019 to 2020. The market for met coal is highly concentrated on the export side, with Australia being the dominant global supplier (54% share in 2020). Other countries with significant market shares are the United States (12%), Canada (9%), Russia (12%) and Mongolia (7%). Asia Pacific countries accounted for 74% of all met coal imports in 2020, with China leading the way at 24%, although China’s imports were 8 Mt (-10%) lower than in 2019 because its domestic production had increased. Japan’s imports also decreased (‑ 9%) as its steel industry suffered significant production cuts due to the economic slowdown during the pandemic, as well as structural changes.
In 2020, global met coal consumption declined 3% to 1 100 Mt as steel production (outside of China) decreased, mainly due to pandemic-related effects. China is by far the world’s largest met coal consumer, accounting for 68% of the global total in 2020. Other significant met coal consumers were Russia (6%), the European Union (5%) and India (5%). In contrast with most other countries, met coal consumption in China increased slightly in 2020 (+0.7%/+5 Mt). The largest decline was in India (-22%/-16 Mt). We expect a slight increase of 0.5% in 2021, raising consumption to 1 106 Mt. As steel production recovers, met coal use increases in all major steel-producing regions, i.e. India (+17%/+9 Mt), the European Union (+9%/+5 Mt), Russia (+2.4%/+2 Mt) and Japan (+10%/+4 Mt). While consumption in China remained high in the first half of 2021, steel production fell in the second half of the year, directly affecting met coal demand and leading us to expect a decline in consumption (-3.9%). Despite the overall recovery in steel production, global met coal use remains below the 2019 level.
Nevertheless, as met coal remains a central element in steel production, consumption is forecast to increase to 2024, rising at an annual average of 1.7% to 1 164 Mt. Output of electric arc furnaces will depend on scrap availability, but our forecast assumes only a small increase in the EAF/BOF production ratio through 2024, based on historical trends. Alternative manufacturing processes such as hydrogen direct reduction will be marginal by 2024. While consumption in China flattens, growth in India (+14 Mt) and other developing economies continues as new blast furnaces are constructed to meet rising steel demand.
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