Global coal demand is set to remain at all-time highs in 2023 We expect coal demand grew by about 1.5% in the first half of 2023 to a total of about 4 665 Mt, backed by both an increase of 1% in power generation and 2% in non-power. We observed continued increases in China, India and Indonesia, which more than offset declines in the United States, the European Union and Japan. In the second half of 2023, we expect a decrease in global coal-fired power generation to more than reverse the first-half gains. For the whole year, we expect demand from the power sector to be 0.4% lower at about 5 597 Mt. In the non-power sector, we expect growth to continue, reaching 2 791 Mt for the full year 2023. As a result, overall global coal demand is expected to remain flat at around 8 388 Mt (+0.4%) in 2023. Whether coal demand in 2023 grows or declines, will depend on weather conditions and on the economies of large coal consuming nations. After three very particular years, with the Covid-19-induced shock in 2020, the strong post-pandemic recovery in 2021, and the first truly global energy crisis after Russia’s invasion of Ukraine in 2022, markets returned to more recognisable patterns in 2023: Declines in the United States and the European Union, and continued growth in Asia. The US and EU declines are driven by the power sector, with a combination of weak electricity demand and renewable energy expansion. In the case of the United States, cheap gas is also weighing on coal demand.

In the United States, coal demand is continuing to decline, driven by the power sector. After contracting by about 24% in the first half, a slower decrease in coal demand is expected in the second half. Total coal demand in 2023 is expected to drop to 357 Mt. Coal demand is also again on a downward trajectory in the European Union and Japan, as well as Korea. In the first half of 2023, coal demand dropped by about 16% in the European Union and for the full year it is expected to decline by about 17% to about 372 Mt. The decrease is driven by weaker economic prospects, lower gas prices, nuclear recovery and ample power production by renewable resources. In Japan and Korea, these effects are limited, resulting in an expected demand of 179 Mt (-1.9%) in Japan and 117 Mt (-2.8%) in Korea.

Global coal demand is forecast to remain flat in 2024 In 2024, we expect global coal demand to remain stable (-0.1%) at about 8.38 bt, which remains a level never reached before 2022. In the electricity sector, we expect a decline of about 1%, due to the continued strong expansion of renewable power generation amid moderate electricity demand growth. However, we expect a small increase of around 1.5% in the industrial sector, as economic conditions improve. Those trends are very much in line with the Coal 2022 report expectations, although at a higher level given the already mentioned upward revisions for 2021. By region, Asia will grow, in particular India and Southeast Asia, offset by declines in the United States and the European Union. Demand is also declining in other mature economies such as Japan, Korea, Australia, and Canada, where coal demand peaked some years ago.

Global coal production reached a new all-time high in 2022 Despite lukewarm economic prospects, global supplies grew by 8% in 2022 to a record 8 634 Mt. The three largest producers – China, India and Indonesia – each reached all-time highs in 2022. Coal production was mainly boosted by China and India, which rapidly increased domestic production to mitigate exposure to high market prices after a first price spike in October 2021. According to the National Bureau of Statistics (NBS), China in December 2022 passed 400 Mt1 of production in a single month for the first time. This is more than any other country, except for Australia, Russia, Indonesia, India and the US, produces in a whole year. With rapid growth of 11% in 2022, China is ahead of its 14th Five-Year Plan. India boosted its domestic production by about 12% to 924 Mt to avoid shortages and reduce import dependency amid rising demand. Coal India Ltd (CIL), the state-owned company accounting for 80% of India’s domestic coal production, increased output by about 12%. Other public companies – SCCL and NLC – also contributed, although the increase in captive blocks – those players allowed to produce coal for their own consumption – was more significant (+30%).

However, elevated global demand for thermal coal imports is projected to be predominantly covered by Indonesian exports, expected to rise by 12% to about 525 Mt for the full year. Similarly, the elevated demand for metallurgical coal is anticipated to be mainly covered by additional exports from Mongolia, more than doubling to well over 40 Mt. Total exports of thermal coal are expected to increase to 1 099 Mt (+5.2%), while metallurgical coal exports are forecast to reach 340 Mt (+11%) in 2023, with total coal trade expected to approach the record volumes seen in 2019. For seaborne coal trade, we project around 1 335 Mt (about 93% of total coal trade) which would surpass the 1 331 Mt record reached in 2019.

Prices After 18 months of high prices and volatility, thermal coal prices return to more normal levels In 2022, a convergence of soaring global coal demand and supply shortages led to exceptionally tight coal markets and unprecedented price levels. There was an overall rise in energy prices after Russia’s invasion of Ukraine, while high gas prices in particular drove many countries to switch to coal-fired generation. Supplyside factors included adverse weather conditions associated with La Niña, triggering heavy rainfalls and flooding, severely impacting coal production mostly in Australia. Additionally, a temporary export ban imposed by the Indonesian government in January 2022 to address domestic shortages lowered the availability of thermal coal in the market. Furthermore, the European Union banned Russian coal and a portion of these supplies could not be diverted to other markets due to eastbound rail bottlenecks. As a result of all these factors, highCV Newcastle free on board (FOB)3 and ARA (Amsterdam Rotterdam Antwerp)4 thermal coal prices surpassed USD 400/t several times in 2022. Newcastle and ARA prices first peaked just below USD 400/t at the beginning of March 2022, when Russia’s invasion of Ukraine unsettled the markets. Following a brief decline below USD 300/t in April, prices ramped up ahead of announced western sanctions. Newcastle prices, also boosted by supply shortages, first surpassed USD 400/t in May and maintained these levels until declining steeply at the beginning of 2023. Prices reached an all-time high of USD 443/t in September 2023. ARA prices peaked three times above USD 400/t between the end of June and the end of July, before embarking on a downward trajectory after reaching the all-time high of USD 408/t.

Following the sharp decline in spot prices at the end of 2022 and their stabilisation in the first half of 2023, the forward price curve for API2 (a price index for coal deliveries to Europe, CIF) adopted a flat trend. It is worth noticing that the current flat forward curve is about USD 65/t higher than the last flat curve in March 2021. Among other factors, the inflation of supply costs play an important role in this.

Acknowledgements, contributors and credits This International Energy Agency (IEA) publication has been prepared by the Gas, Coal and Power Markets Division (GCP), headed by Dennis Hesseling. Keisuke Sadamori, Director of Energy Markets and Security, provided with essential guidance and Carlos Fernández Alvarez has led and co-ordinated the analysis. Arne Lilienkamp and Carlos Fernández Alvarez are the authors.

Source:http://IEA