MettaInsights: Coal Commodity Market
Jan 26, 2022
What is Coal?
Coal is a combustible black or brownish-black sedimentary rock with a high amount of carbon and hydrocarbons. Coal is classified as a nonrenewable energy source because it takes millions of years to form. Coal contains the energy stored by plants that lived hundreds of millions of years ago in swampy forests. Layers of dirt and rock covered the plants over millions of years. The resulting pressure and heat turned the plants into the substance we call coal. (1)
The types of coal include (more carbon = more energy/heat):
- Anthracite – Contains 86%–97% carbon;
- Bituminous – Contains 45%–86% carbon;
- Subbituminous – Contains 35%–45% carbon;
- Lignite – Contains 25%–35% carbon.
What is Coal Used For?
Coal is an abundant natural resource that can be used as a source of energy, as a chemical source from which numerous synthetic compounds (e.g., dyes, oils, waxes, pharmaceuticals, and pesticides) can be derived, and in the production of coke for metallurgical processes. (2)
Coal is a major source of energy in the production of electrical power using steam generation. In addition, gasification and liquefaction of coal produce gaseous and liquid fuels that can be easily transported (e.g., by pipeline) and conveniently stored in tanks. (2, including the map below)
Coal is considered to be the dirtiest fossil fuel by the International Energy Agency (IEA).
Price Performance in 2021
Coal reached a multiyear high of $269.50/tonne in October 2021 before falling bellow $150/tonne. (3, graph below)
The highest price reached in 2021 is more than two times higher compared to levels reached in the last 10 years. (3, graph below)
The price of coal is mainly influenced by two factors:
- Current and medium-term demand
- Governmental clean energy and climate policy (especially China and India)
An economic rebound from the Covid-19 pandemic could drive worldwide coal demand to an all-time high in 2022, according to the International Energy Agency. (4)
Global coal demand fell by 4.4% in 2020 due to a mix of reduced demand by households (mild winter in the Northern Hemisphere) and industry, as well as strong renewables growth and low natural gas prices. (4)
On the background of coal’s performance in 2020, 2019, and 2018, few analysts were prepared for the upside coal experienced in 2021. With electricity demand outpacing low-carbon supply, and with steeply rising natural gas prices, global coal power generation increased by 9% in 2021 to 10 350 terawatt-hours (TWh) – a new all-time high. (5)
Global coal trends are being shaped largely by China and India, who account for two-thirds of global coal consumption, despite their efforts to increase renewables and other low-carbon energy sources. In China, coal demand growth is expected to average less than 1% per year between 2022 and 2024. In India, stronger economic growth and increasing electrification are forecast to drive coal demand growth of 4% per year. (5)
According to the IEA, in the European Union and the United States, after a brief rebound in 2021, coal demand will resume its decline through 2024.
Based on current trends, global coal demand is set to rise to 8 025 Mt in 2022, the highest level ever seen, and to remain there through 2024. (5)
The pledges to reach net zero emissions made by many countries, including China and India, should have very strong implications for coal – but these are not yet visible in IEA’s near-term forecast, reflecting the major gap between ambitions and action. The two countries hold the key to the future of global coal demand. China announced it would end international funding for new coal plant constructions and a wide range of banks have already stated that they will not support such business endeavors.
Looking at the current state of the coal market, according to Bloomberg, coal prices are surging as traders in Asia scramble to snatch up winter supply amid fears of delayed deliveries from Indonesia and as a global energy squeeze continues. (6)
At least one cargo of Australian coal for February loading changed hands at $300 a metric ton on Friday (21.01.2022), that’s one of the most expensive cargoes ever transacted, the traders said, and could push spot price indexes above last October’s record high. (6)
It will be an interesting year for the coal price with record increases likely in the first half. Here is an enlightening forecast by Trading Economics (3):
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1) US Energy Information Administration. Coal Explained. Last updated: October 19, 2021. Accessed on January 24, 2022. URL.
2) Kopp, C Otto. Coal. Encyclopedia Britannica Online. Accessed on 25.01.2022. URL.
3) Trading Economics. Coal. Accessed on 25.01.2022. URL.
4) Ambrose, Jullian. Global demand for coal could hit all-time high in 2022. The Guardian Online. Published on: 17.12.2021. Accessed on: 25.01.2022. URL.
5) International Energy Association. Coal Report 2021. Published: 12.2021. Accessed on: 25.01.2022. URL.
6) Almeida, Isis et al. Coal Soars to $300 a Ton as Asia Scrambles for Power Plant Fuel. Bloomberg Online. Published: 21.01.2022. Accessed on: 25.01.2022. URL.
Check out the rest of the MettaInsights research articles to educate yourself on commodity markets such as Nickel, Palladium, Zinc, European Union Emission Allowances (EUAs), Wheat, Uranium, Brent Crude Oil, Natural Gas, Lithium Carbonate, Iron Ore.
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