Global coal demand reached a new all-time high in 2022 As projected in the Coal 2022 report last December, global coal demand reached a new all-time high in 2022, rising above 8.3 billion tonnes (bt). It rose despite a weaker global economy, mainly driven by being more readily available and relatively cheaper than gas in many parts of the world. The turn to coal-fired generation was further supported by overall weak nuclear power and hydropower production, contributing to a new record global high of 10 440 TWh being generated from coal, representing 36% of the world’s electricity generation, up one percentage point compared to 2021. In addition, final 2021 demand numbers for coal were revised upward, particularly in China, meaning that 2022’s increased demand was coming off an even higher base. In China, coal demand grew by 4.6% in 2022 to a new all-time high of 4 519 Mt. Demand was higher than expected in last year’s Coal Report for two reasons. First, the calorific value (CV) of coal produced in China was lower, resulting in higher-than-expected volumes. Second, more coal than expected was gasified to produce synthetic liquid fuels, plastics and fertilizers. As a result, we estimate that coal demand for non-power uses grew by 7%, despite economic growth of only 3% and a sluggish real-estate sector.

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. China will continue to account for more than half of the world’s coal use, with the power sector alone consuming one-third. If we add India, the global share rises to about 70%, meaning that China and India together consume double the amount of coal as the rest of the world combined. Along with recent growth in Southeast Asia, the dominance of the Asia continent is further increasing. In 2024, the share of China, India and the ASEAN region is expected to reach 76%. At the same time, the United States’ and the European Union’s share of coal consumption, which amounted to 40% three decades ago, will fall to 8% by 2024.

Supply 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%). Coal production in the European Union grew for the second year in a row to a total of 349 Mt, up 5% from the previous year, owing to an increase of lignite production to feed nearby power plants, mostly in Germany, Czech Republic and Bulgaria.

Trade A major reshuffling of trade flows in 2022 Global coal flows experienced significant shifts in 2022, driven by sanctions imposed on Russia after it invaded Ukraine. Russian supplies could not all be redirected due to railway constraints, contributing to a tightening of global supplies. Other producers, in particular Australia, faced severe production disruptions due to adverse weather conditions (La Niña). Infrastructure issues hindered South Africa from fully capitalizing on higher prices. In response to elevated prices, China and India limited imports and significantly pushed domestic production. Despite this, India’s imports increased due to strong demand. International trade of thermal coal grew by 2% to 1 045 Mt. Trade of metallurgical coal experienced a slight decline, driven by weaker economic performance, amounting to 307 Mt (-0.4%). Thermal coal exports from Russia dipped approximately 10% to 157 Mt, while metallurgical coal exports fell by 14% to 35 Mt. Australian thermal coal exports fell by about 7% to 184 Mt, whilst exports of metallurgical coal decreased by 3% to 166 Mt. The United States, which had previously served as a swing supplier, witnessed a 2.8% decrease in thermal coal exports to 35 Mt despite high prices, due to shortages of rail slots and to the poor perspectives for the sector dissuading financing and investment. Metallurgical coal exports remained stable. Colombian exports of thermal coal decreased by 4% to 52 Mt, in part due to unfavourable weather conditions.

Coal trade in 2023 is heading back to 2019 volumes Despite no new large-scale projects coming online, high prices in 2022 have left coal mining companies with stronger balance sheets, providing them with an opportunity to invest in sustaining as well as some expansionary capex. This, together with the end of La Niña, which hampered production in Australia, has strengthened the coal supply outlook for 2023 despite coal prices retreating from their highs. Stronger coal supply and lower gas prices sent coal prices steeply downward towards the end of 2022. The drops attracted price-sensitive buyers such as China and India, although the price declines were partially offset by the depreciation of the Chinese yuan renminbi and the Indian rupee against the US dollar. China and India ramped up imports at the beginning of 2023, with China even ending its unofficial ban on coal from Australia. Until April, imports from China and India amounted to approximately 50% of global coal imports, as the two largest coal producers and consumers are also the largest importers. During the first half of 2023, the European Union temporarily turned into an exporter of thermal coal due to ample inventories accumulated during the previous year and reduced coal-fired power generation. In April, EU countries exported close to 1 Mt. Export destinations included, among others, Morocco, India, and China.

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.

Russian discount almost vanished In response to Russia’s invasion of Ukraine, several western countries and institutions imposed sanctions on Russia, including exclusion from the international payment system SWIFT, severely impeding the settlement of Russian coal trades in dollars. Furthermore, the European Union implemented a ban on Russian coal effective from August 2022, and some Japanese and Korean utilities announced their intention to cease buying Russian coal. In 2021, the European Union, Japan and Korea collectively accounted for about 40% of Russian coal exports. Due to sanctions, cargo insurance was more difficult to procure.

The exceptionally high prices were also evident when comparing high-grade thermal coal to other commodities. In September and December 2022, high-grade thermal coal was temporarily trading at higher prices than Brent Crude Oil in energy terms.

Backwardation disappeared from forward curves The tumultuous conditions in the coal spot market during 2021 and 2022 also influenced forward prices. Whilst exhibiting strong backwardation (when spot prices are higher than futures) from mid-2021 to the end of 2022, market expectations on futures markets varied broadly. During the peak price of USD 254/t in October 2022, the market initially expected long-term prices to return to just below USD 100/t by 2024. However, the sanctions imposed on Russa following its invasion of Ukraine fundamentally altered market expectations. By mid-2022, forward prices anticipated coal prices to remain above USD 200/t until mid-2025.

Source:http://IEA