Coal 2022 Analysis and forecast to 2025

Coal markets have been shaken severely in 2022, with traditional trade flows disrupted, prices soaring and demand set to grow by 1.2%, reaching an all-time high and surpassing 8 billion tonnes for the first time. In last year’s annual market report, Coal 2021, we said that global coal demand might well reach a new peak in 2022 or 2023 before plateauing thereafter. Despite the global energy crisis, our overall outlook remains unchanged this year, as various factors are offsetting each other. Russia’s invasion of Ukraine has sharply altered the dynamics of coal trade, price levels, and supply and demand patterns in 2022. Fossil fuel prices have risen substantially in 2022, with natural gas showing the sharpest increase. This has prompted a wave of fuel switching away from gas, pushing up demand for more price-competitive options, including coal in some regions. Nonetheless, higher coal prices, strong deployment of renewables and energy efficiency, and weakening global economic growth are tempering the increase in overall coal demand this year. In China, which accounts for 53% of global coal consumption, prolonged and stringent Covid-19 lockdowns have weighed heavily on economic activity, undermining coal demand. At the same time, droughts and heat waves in China this summer accelerated coal burning to meet a surge in power demand for air conditioning.

Global coal demand breaches 8 billion tonnes threshold despite slow growth in 2022 Global coal consumption rebounded by a strong 6% to 7 929 million tonnes (Mt) in 2021, after a sharp decline the previous year due to the onset of the Covid-19 pandemic. A robust economic recovery, especially in countries that rely heavily on coal, such as the People’s Republic of China (hereafter “China”) and India, while higher natural gas prices prompted a wave of fuel switching to coal, with power generation up 8% to 5 344 Mt. Increased industrial activity boosted coal use for non-power applications by 2.2% to 2 585 Mt. China is by far the largest coal-consuming country, accounting for 53% of global demand. Overall, China’s coal consumption increased by 4.6% to 4 232 Mt in 2021, with the strongest growth in the first half of the year before slowing in the second half. Coal demand in India, the second-largest consumer, increased by an even sharper 14%, or 128 Mt, in 2021. Other countries reporting significant gains were the United States (+15%/+66 Mt), Germany (+19%/+26 Mt) and Poland (+12%/+13 Mt). Only a few countries recorded declines last year, with South Africa posting the largest fall at -5% (-9 Mt).

Global coal supply hits all-time high in 2022 but stalls by 2025 Despite deteriorating economic prospects, global coal supply is forecast to reach a new high in 2022 as demand for coal in power generation increases in response to tight gas markets and high prices. China and India continue to boost their coal production to overcome supply shortages, more than offsetting the decline in Russian production due to Western sanctions imposed in the aftermath of the country’s invasion of Ukraine. Global coal production is forecast to rise by 5.4% to 8 318 Mt in 2022, a new all-time-high and well above the record set in 2019. This follows an increase of 3.9% to 7 888 Mt in 2021 as economies recovered from the pandemic-induced demand drop in 2020. In absolute terms, 2021 growth was mainly driven by production increases of 153 Mt in China (4%) and 48 Mt in India (~6%). Steam coal and lignite accounted for 98% of the 295 Mt increase and around 86% of total production.

Global trade rebounded on strong demand in 2021, but will decline through 2025 International coal trade started slowly recovering from the economic fallout from Covid-19 in 2021, with volumes rising to 1 333 Mt for the year5 , accounting for ~17% of global coal demand. However, while the trade of thermal coal (which includes lignite and some anthracite) increased by 1.6%, metallurgical (met) coal trading volumes declined by 2.3%, reversing previous year’s developments. The great majority of coal traded in 2021 (93%) is seaborne. Traditionally, coal trade has been concentrated in the Pacific and Atlantic Basins, with South Africa and – to a lesser extent – Russia linking the two. However, international coal trade patterns shifted in recent years as Europe’s import demand declined and South African exports moved to the Pacific and the Indian Ocean. In 2021, however, surging natural gas prices reversed this development as coal import demand in Europe rose. Imports by Germany (38 Mt) surpassed Türkiye (36 Mt) again to make it the largest importer outside of Asia Pacific, which accounted for 79% of global coal imports.

Thermal coal trade declines but met coal trade increases through 2025

Thermal coal trade recovered in 2021 from a steep decline in 2020 After a Covid-19-induced decline, thermal coal trade rebounded to 1 025 Mt in 2021, led higher as the economic recovery gathered pace and by rising gas prices. Approximately 94% of the trade was seaborne. The share of the international coal trade in global coal demand decreased from about 16% to 15% as increasing imports were outpaced by growing demand, which was mainly met by higher domestic supply, particularly in China and India. The Asia Pacific is the most important thermal coal trading region: it was the origin of ~63% of all exports and the destination for about ~82% of all imports in 2021. Indonesian thermal coal exports accounted for ~42% of the global trade, raising its market share from ~40% in 2020. Australia ranked second, with a market share of ~19%, followed by Russia at 17%, South Africa at 6%, Colombia at 5% and the United States at 4%. China remained the world’s largest importer of thermal coal, increasing volumes by 16% to 284 Mt, followed by India and Japan. In 2021, India’s thermal coal imports contracted 10% to about 141 Mt. This was partly due to higher domestic production and buyers’ reluctance to pay higher prices, leading to severe coal shortages in the second half of 2021. Japan’s imports decreased to about 129 Mt. Thermal coal imports in Southeast Asia fell by 11 Mt to 126 Mt, mainly driven by a sharp decline in Viet Nam. Imports by the European Union rose strongly to 61 Mt (+25%) due to high gas prices.

Thermal coal imports are expected to contract through 2025 Imports of thermal coal are expected to expected to decrease slightly to 1 035 Mt in 2022. Thermal coal imports account for 77% of global coal imports and for 15% of overall thermal coal demand. The stagnation in 2022 is largely due to lower imports by China, which saw a significant ramp-up of domestic supply and a deceleration of demand growth. Strong increases in thermal coal imports from India and Europe offset the decrease. China’s thermal coal imports are forecast to decline by 44 Mt to 240 Mt in 2022. The country remains the world’s largest importer of thermal coal by far, but its share will edge lower from 28% to 23%. In February, imports tumbled to 9 Mt, the lowest level since November 2020, but recovered thereafter and reached previous year’s level in August. China significantly increased imports of Russian coal in the second half of the year as steep price discounts emerged following widespread Western bans and sanctions on the country’s energy supplies. In August, China imported 6.6 Mt of Russian coal, a sharp year-on-year increase of 2.2 Mt.

Growing met coal import demand met by Australia

International coal prices reach record highs – thermal coal even traded above coking coal After falling to 14-year lows in 2020, thermal coal prices rebounded strongly in 2021. Most international thermal price indices reached all-time highs in October, reflecting a supply-demand imbalance following the post-Covid-19 recovery, with coal and electricity shortages in China and India, to name the most relevant cases. Newcastle free on board (FOB) prices for high-grade thermal coal with a calorific value of 6,000 kcal/kg and the API2 prices (index for coal deliveries to Europe) reached an unprecedented USD 253/t and USD 254/t, respectively. Prices eased again by the end of the year as China’s efforts to increase production bore fruit, and coal inventories returned to normal. In January 2022, spot thermal coal prices were initially pushed up when the Indonesian government decided to suspend exports immediately in response to domestic supply shortages. At the end of January, Australian high-grade coal was trading at USD 261/t, which was a new record at the time, while prices in Europe (API2) traded lower at USD 206/t. Russia’s invasion of Ukraine triggered prices worldwide to skyrocket to another record high of USD 380/t in March 2022. European thermal coal prices caught up again with Australian prices. By contrast, South China’s import prices were less affected due to lower demand, enhanced domestic production and the opportunity to buy discounted Russian coal. With the end of the heating season in the Northern Hemisphere, global seaborne thermal coal prices softened briefly in April. In May, European and Australian prices picked up again. Australian high-grade thermal coal prices climbed straight to the next record high of about USD 425/t in May as flooding in the country hampered coal production and transportation while utilities in Europe and Northeast Asia sought to obtain supplies of non-Russian coal.

International thermal coal prices climb from record to record, while prices in China diverge

Coal supply costs increased in 2021 but prices rose more and profitability improved The supply costs for metallurgical coal are generally higher than those for thermal coal. This is because met coal is more often mined underground and, on average, comes from smaller coal mines than thermal coal. In addition, the preparation costs for met coal are higher than for thermal coal. In 2021, the cost of coking coal supply was relatively stable compared to 2020, but the amount of exported coking coal increased. In particular, Russia’s Elga low-cost coal mine, which ramped up exports in 2021, has placed itself at the beginning of the export supply curve for coking coal. As prices increased, so did the profitability of coking coal production. The average FOB price for Australian low-volatile met coal rose by 79% compared to the previous year.

Indicative hard coking coal FOB supply curve 2021 and average FOB marker prices

Record margins for coal producers

High prices hardly stimulate coal mining projects Two reasons could justify an uptick in coal investment. First, the unprecedented high prices prevailing since October 2021 have made thermal coal one of the best-performing commodities since then. Second, the energy crisis triggered by Russia’s invasion of Ukraine and its consequences, i.e. energy shortages, has renewed focus on energy security. Whereas the two above-mentioned factors undeniably impact market players’ moods, the analysis of the evolution of the individual projects and new ones does not show signs of significant acceleration in coal investment outside China and India.

Total coal consumption (Mt), 2020-2025

Acknowledgements, contributors and credits This publication has been prepared by the Gas, Coal and Power Markets Division (GCP) of the International Energy Agency (IEA). The analysis was led and co-ordinated by Carlos Fernández Alvarez, acting Head of GCP. Arne Lilienkamp, Jonas Zinke and Carlos Fernández Alvarez are the authors. Keisuke Sadamori, Director of the Energy Markets and Security (EMS) Directorate, provided expert guidance and advice. Other IEA colleagues provided important contributions, including Yasmina Abdelilah, Heymi Bahar, Louis Chambeau, Joel Couse, Laura Cozzi, Jean-Baptiste Dubreuil, Tim Gould, Astha Gupta, Tetsuro Hattori, Ciarán Healy, Martin Husek, YuJin Jeong, Javier Jorquera, Akos Losz, Gergely Molnár, Jinseok Rho and Hiroyasu Sakaguchi. Timely and comprehensive data from the Energy Data Centre were fundamental to the report. Laura Martínez and Nicola Dragui provided invaluable support during the process. Thanks go also to the IEA China desk, particularly Rebecca McKimm, Yang Zhiyu and Yang Biqing, for their research on China. The IEA Communication and Digital Office (CDO) provided production and launch support. Particular thanks go to Jad Mouawad, Head of CDO, and his team: Astrid Dummond, Jethro Mullen, Greg Viscusi, Isabelle Nonain-Semelin and Therese Walsh. Diane Munro edited the report.


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