Global Coal Production
According to most recent data, global coal production is expected to rise by 5.4% to reach 8,318 metric tons in 2022. This represents a new all-time high and is significantly higher than the previous record set in 2019. The increase is a result of economies recovering from the pandemic-induced demand drop in 2020, which saw a 3.9% increase in coal production to 7,888 Mt in 2021. China and India were the main contributors to this growth, with China seeing a 4% increase in production (153 Mt) and India experiencing a 6% increase (48 Mt).
Steam coal and lignite accounted for the majority of the production increase, with 98% of the 295 Mt increase coming from these sources. Together, these fuels made up around 86% of total production. The report suggests that the trajectory for global coal production will continue to rise in the short term, reaching a peak in 2023. However, by 2025, coal production is expected to fall to 8,221 Mt, which is below the 2022 levels.
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The decline is mainly attributed to China’s plateauing coal production in the coming years, and the expected large declines in other regions such as the United States (-92 Mt), the European Union (-68 Mt), Indonesia (-40 Mt), and Russia (-13 Mt). Despite this, India’s coal production is expected to continue to grow (+128 Mt) and partially offset the decline in other regions.
American coal producers face difficulties in increasing their coal production
Coal production in the United States is projected to rise by only 2% in 2022, despite high export prices for coal, steep prices for gas, and low inventories. This means that the United States is no longer considered a swing supplier. Although coal production in the Western region is expected to grow by 6%, the Appalachian region (-0.2%) and the Interior region (-2.8%) are expected to experience a decrease.
As demand for thermal coal in the US continues to fall, and there are shortages of personnel and a lack of investment, we anticipate that coal production will continue to decrease in the coming years. We predict an annual decline of 6.1% until 2025, at which point production will hit 443 Mt.
In 2022, several coking coal mines and one thermal coal mine will have commenced operations in the United States. Ramaco Resources has boosted its metallurgical coal production by about 2.6 million metric tons per year. The increase in capacity was driven in part by the expansion projects at the Berwind and Elk Creek complexes, and in part by the commissioning of two new mines: the Knox Creek mine, which has a capacity of 0.7 million metric tons per annum, and the Big Creek 2 mine, which has a capacity of 0.2 million metric tons per annum. In addition, Ramaco Resources acquired Ramaco Carbon LLC at the start of the year and began producing coal in its Brook Mine, which has a capacity of 0.25 million metric tons per annum.
Peabody has reopened its Shoal Creek mine, which was shut down in 2020 due to low demand. The mine is currently ramping up coking coal production and is expected to reach its maximum production capacity of 2.1 million metric tons per annum soon. Moreover, there are additional coking coal projects with a combined capacity of 4.5 million metric tons per annum in the more advanced stages of development. Among these, North Central Resources’ Longview coal mine stands out with a total capacity of 3 million metric tons per annum. However, the start of production has been pushed back from the end of 2022 to mid-2023.
Global coal demand
After a sharp decline the previous year due to the COVID-19 pandemic, global coal consumption rebounded by a strong 6% to 7,929 million tonnes (Mt) in 2021. This was driven by a robust economic recovery, particularly in countries such as China and India, which rely heavily on coal. Additionally, higher natural gas prices prompted a wave of fuel switching to coal, leading to an 8% increase in power generation to 5,344 Mt.
Furthermore, increased industrial activity boosted coal consumption for non-power applications by 2.2% to 2,585 Mt. However, the United States saw a significant decline in coal consumption (-6%/-31 Mt) due to the ongoing shift from coal- to gas-fired power generation and years of underinvestment in coal production.
US coal demand
Despite a brief resurgence in 2021, coal-fired power generation in the United States continues its downward trend as renewable energy expansion accelerates and the coal power fleet shrinks. More than 6 GW of coal-fired capacity was retired or converted in 2021, and nearly 13 GW are scheduled to close in 2022. Owing to logistical issues and high prices in global markets, limited access to coal has placed further strain on coal-fired generation, driving up the share of renewables and natural gas in electricity generation, despite the latter’s higher cost. Coal’s portion of electricity generation is projected to drop from 23% in 2021 to 20% in 2022. Overall, a 6.3% decrease in coal consumption to 465 Mt is predicted, in line with a reduction in coal-fired electricity generation, which accounts for 92% of total coal usage.
Thermal coal trade
Following the decline caused by the Covid-19 pandemic, the thermal coal trade rebounded in 2021 to reach 1,025 Mt, driven by the economic recovery and higher gas prices. Seaborne trade accounted for 94% of the total. However, despite the high coal prices, not all coal-exporting countries were able to expand their exports. Indonesia and the United States were able to increase their volumes significantly, while Colombia and South Africa experienced a sharp decline in exports. Meanwhile, Russia’s export volume remained steady at 2020 levels. Indonesia, in particular, increased its volumes by 7% to 432 Mt, returning to a growth trajectory after lower demand from India in 2020. However, the increase in US exports may be temporary, as the higher exports came at the cost of falling stocks.
Met coal trade
Metallurgical coal, which accounts for only 23% of the global coal trade, is much more dependent on international markets than thermal coal. In 2021, global demand for met coal was met by imports, which made up around 29% (324 Mt) of the total demand, with around 91% of those imports being seaborne. Unfortunately, metallurgical coal exports have fallen for the second year in a row, dropping to 308 Mt in 2021.
On the export side, the met coal market is heavily concentrated, with Australia dominating as the largest exporter, holding a market share of around 56% in 2021. The United States, Russia, and Canada follow with market shares of 13%, 13%, and 9% respectively, which together account for around 91% of all metallurgical coal exports.
Record high international coal prices observed
Thermal coal prices saw a strong rebound in 2021 after falling to 14-year lows the previous year. As the world’s economies emerged from the COVID-19 pandemic, a supply-demand imbalance was created, resulting in coal and electricity shortages in China and India, among others. This led to most international thermal price indices reaching all-time highs in October. High-grade thermal coal with a calorific value of 6,000 kcal/kg saw Newcastle free on board (FOB) prices and the API2 prices (the index for coal deliveries to Europe) hit record highs of USD 253/t and USD 254/t, respectively. However, prices started to ease towards the end of the year as China ramped up production and coal inventories returned to normal levels.
The value of the US dollar impacts the cost of coal imports, with a strong appreciation leading to further increases in expense
The value of a country’s currency against the US dollar plays a crucial role in the affordability of coal imports since international coal trade contracts are mostly negotiated in dollars. The exchange rates of major coal-importing countries have been relatively stable in recent years, with slight fluctuations. However, some currencies, such as the Turkish lira, have experienced significant depreciation. The loose monetary policy of the Federal Reserve has led to the appreciation of currencies like the Chinese yuan, the euro, and the British pound in 2020 and 2021.
In 2022, the US Federal Reserve raised interest rates in response to increasing inflation rates, causing the dollar’s relative value to rise against other currencies. This development further exacerbates the energy crisis, especially for countries heavily reliant on high energy imports. Several currencies, including the Japanese yen, euro, Korean won, British pound, and Polish zloty, lost 10-16% of their value in the first eleven months of 2022. The Turkish lira’s depreciation also accelerated, resulting in a loss in value of more than 46% compared to the US dollar.
High prices have little impact on most coal mines in the United States
The vast majority of coal mined in the United States is consumed domestically. Long-term contracts with fixed prices dominate the domestic coal market, which means that many US coal mines are unable to fully benefit from the current high world market prices. From January 2021 to September 2022, the average cost of delivering coal to US power plants has increased by only about 31%, leaving some mine operators struggling to cover their rising operating costs. In an attempt to gain more price flexibility and offset their elevated production costs, some surface mines have started to tie sales agreements and prices to diesel indexes. This approach could help mine operators adjust their prices to better match the fluctuations in production costs.
Despite the rise in coal supply costs in 2021, the increase in prices was even higher, resulting in improved profitability
The cost of producing metallurgical coal is typically higher than that of thermal coal due to several factors. First, metallurgical coal is primarily extracted from underground mines, which is a more costly and complex process than surface mining, where most thermal coal is obtained. Furthermore, metallurgical coal is often mined from smaller coal mines, making economies of scale harder to achieve. Another reason for the higher production costs of metallurgical coal is that it requires more preparation than thermal coal to meet specific quality standards, which results in additional expenses.
Fuel costs rose in many countries
Most countries are experiencing a rise in labor costs
Other exporters’ competitiveness improves with a strong US dollar.
The global coal market is heavily influenced by currency exchange rates, as they can significantly impact the competitiveness of exporters. According to industry experts, coal trading contracts are predominantly denominated in US dollars, while operating costs are paid in local currencies. This means that when local currencies experience a depreciation against the US dollar, it can result in reduced operating costs, increasing the competitiveness of coal producers. With the current state of the global economy and the ongoing fluctuations in currency exchange rates, this trend is expected to continue to shape the coal market in the coming years.
Metallurgical coal investments remain the top priority for coal investors
In the midst of global efforts to reduce carbon emissions, the steel industry remains heavily reliant on coal-based production. Despite promising alternatives such as hydrogen-based steelmaking, these technologies are not yet available on a large enough scale to meet demand and remain too expensive for practical implementation. As a result, coal remains the primary source of steel production, accounting for roughly one-third of advanced coal export mining projects.
Meanwhile, major mining companies continue to shift their focus away from thermal coal. Industry giants such as Rio Tinto and Anglo American have already sold off most of their coal mines, with BHP now following suit by announcing its intention to sell its Mt Arthur thermal coal mine. However, despite efforts to find a buyer, the company has not yet succeeded and instead applied for a permit to operate the mine beyond 2026 until 2030.
Coking coal projects are in the spotlight in the United States
The US coal industry is showing signs of growth, as several new mines have begun operations in 2022. Ramaco Resources, a leading coal producer, has expanded its metallurgical coal production capacity by over 2.6 million tons per annum (Mtpa) through its Berwind and Elk Creek complexes, as well as through two new mines: the Knox Creek mine with a production capacity of 0.7 Mtpa and the Big Creek 2 mine with a production capacity of 0.2 Mtpa. In addition to this, Ramaco Resources also acquired Ramaco Carbon LCC earlier this year and has commenced production at its 0.25 Mtpa thermal coal Brook Mine. The increase in production is a welcome development for the US coal industry, which has faced challenges in recent years due to competition from natural gas and renewable energy sources.
|Year and Quarter||Production||Imports||Waste coal supplied||Producer and distributor stocks||Consumption||Exports||Consumer Stocks||Losses and unaccounted for|
US Coal Production 2016-2022 (thousand short tons)
Total Coal Consumption Worldwide(Mt) 2020-2025
|Central and South America||48||50||45||37|
Total Coal Production Worldwide(Mt) 2020-2025
|Central and South America||61||66||65||62|
International Energy Agency – www.iea.org
US Energy Information Administration Quarterly Coal Report – www.eia.gov