Concurrently, coal is the largest source of manmade CO2 emissions and curbing consumption is essential to meeting international climate targets. The International Energy Association (IEA)’s Coal 2023 analysis suggests a historic turning point is coming and projects a coal demand peak within this decade under today’s policy settings. This is due to a structural decline in coal usage in developed economies and a weaker economic outlook for China, which has pledged to reach peak CO2 emissions before 2030.
Still, questions remain about when this peak demand will happen, at what level and how fast coal consumption will decline after that point.
Coking coal price forecast and the green transition
Regarding global supply, research firm BMI forecast the price of Australian coking coal price for 2023 at US$295 per ton.* BMI’s Sabrin Chowdhury, Head of Commodities, says moving into 2024 she sees prices settling at an annual average of US$300 per ton as demand stabilises. In the long-term BMI expects coking coal prices to trend downward as global blast furnace steel production slows and steelmakers transition to cleaner steelmaking processes.
It expects slowing steel production in importing nations, except India, will cap coking coal demand and consequently prices. It also foresees a greater adoption of electric arc furnaces as well as the use of green hydrogen in steelmaking.
“This paradigm shift will reduce the need for coking coal in the production of steel, hampering the fossil fuel’s long-term demand and price outlook,” states Chowdhury.
Nevertheless, she predicts that coking coal prices will remain high by historical standards over the 2024 to 2027 period because prices now start from a higher base following Russia’s invasion of Ukraine. And BMI does not expect a full price collapse as supply will remain tight globally.
Supply of coking coal and projected risk factors
Current uncertain global conditions present risk to coking coal price forecasts, says Chowdhury. On the downside the deep recession in developed markets could exacerbate already weak global manufacturing, steel production and construction sectors. This would lead to a decline in coking coal consumption, further impacting prices negatively. Additionally, a stronger supply outlook could contribute to lower prices due to increased inventory.
“On the upside, there is the potential for Mainland China to experience a resurgence in construction activities and higher growth in steel production. In such a case, Mainland China could increase its coal imports from Australia back to levels prior to 2020. The increased demand from China would cause a massive rally in coking coal prices,” says Chowdhury.
BMI sees China’s demand for coking coal peak in the latter half of the decade. In the long term there is an expectation that green hydrogen, to be produced without use of fossil fuel, will play an increasing role in decarbonising steel production.
Europe thermal coal demand takes a dip BMI sees Europe driving global coal demand weakness at the start of 2024. European markets sought to diversify away from Russian energy sources in 2022, creating a short-term rise in coal demand at the start of the Russia- Ukraine conflict.
“Rising coal stockpiles and lower demand in Europe has compelled some market participants to resell excess inventory to Asia and Africa, putting additional pressure on global prices. Throughout H123, thermal coal from Europe has been shipped to markets such as Morocco, Senegal and Guatemala,” says Chowdhury. In the longer term, even as European coal demand declines, BMI sees demand starting to show signs of revival in Mainland China.
“Data from China customs shows a 163% YOY increase in coal imports into Mainland China during the first eight months of the year, reaching 21.5Mt in August 2023.
“Yet, this rise in imports has failed to benefit Newcastle thermal coal prices, which have largely range traded between US$130-160/t in H2 2023.” Chowdhury explains.
China imported more thermal coal because hydropower generation in southwest China decreased 18% between mid-2022 and mid-2023, with fossil fuel power generation increasing 7% during that period.
“Coal was regarded as critical during Mainland China’s National Congress in 2022 and in its two sessions which met in March 2023. Developments in China will have the largest impact on the outlook for global coal demand, since China’s power sector alone accounts for one third of global coal consumption according to the IEA,” states Chowdhury.
Thermal coal pricing going forward
BMI maintains its long-term forecast of prices averaging US$170/t in 2024 before falling to US$130/t in 2027. It sees the EU’s accelerating shift towards alternative power weaking coal’s dominance in the energy sector. “Even in the unlikely event of a rapid de-escalation of the Russia-Ukraine conflict, we expect that policy direction in the EU is now firmly set on greater energy independence from Russia.
“On the global demand side, the rapid expansion and acceleration of renewable energy in the EU will allow for reductions in coal use. In Mainland China, the steady build-up of renewable power and climate goals will also translate to reduced demand for coal upon the installation of necessary power grids and supply.
“On the supply side, production is expected to increase in Mainland China and India, reducing reliance on imports. Apart from these two countries, there are no strong signs of growth.
“Firms are likely to increasingly divest away from their coal resources in the longer term as energy trends shift away from coal, alongside increasing climate concerns. Governments, banks and mining companies continue to show a lack of appetite for coal, particularly thermal coal.
“Most recently, in January 2023, Glencore was pressured by shareholders for greater disclosure on its thermal coal production and capital expenditure, with shareholders citing concerns about the firm’s climate goals and added risks from its coal assets,” says Chowdhury.
She adds the main risk to prices lie with a recession in the world economy, a significant slowdown in Mainland China’s rebound or the US dollar strengthening to 2022 highs.
African coal demand and supply led by South Africa
The IEA states that coal consumption in Africa decreased by 4.4Mt in 2022, to a total of 187Mt because of persistent issues with Eskom’s coal plant fleet. This decrease was modest though because consumption was already reduced thanks to the COVID-19 pandemic.
Stagnant economic activity and persistent loadshedding in 2023 continued to drag down South Africa and – by extension –the entire continent’s coal demand. The IEA forecasts a U-turn on the continent’s coal consumption trend for the period to 2026 though, with total demand increasing to 193Mt over the next three years. It credits this growing figure to a better forecast for Eskom’s coal-fired power stations.
While it points out that 84% of Africa’s coal consumption in 2022 came from South Africa and the poor performance of Eskom’s coal-fired power stations decreased overall coal demand, the IEA predicts this continued demand for years to come.
Eskom’s Just Energy Transition, funded by the World Bank, was meant to kick off with the decommissioning of 56-year-old Komati coal plant, which went dark in October 2022. “However, given the critical supply situation, South Africa’s climate policy body recently suggested delaying the retirement of coal plants without specifying a timeline,” the IEA states.
