Recently, the International Energy Agency (IEA) released the annual coal market report Coal 2022, which analyzes and forecasts the international coal market from 2022 to 2025 in terms of demand, supply, trade, price, etc.
In Coal 2021 released last year, the International Energy Agency predicted that global coal demand is likely to peak in 2022 or 2023, and then tend to stabilize. In this year's report, the agency pointed out that despite the global energy crisis, under the combined effect of various factors, the overall outlook of the coal market this year remains unchanged.
The report points out that the world environment has greatly changed the global coal trade, price level and supply and demand mode in 2022.
The price of fossil fuels will rise significantly in 2022, with natural gas rising the most. This has led many consumers to switch from natural gas to other energy sources, driving up demand for more price competitive energy, including coal. Nevertheless, the increase of coal price, the growth of renewable energy, the improvement of energy efficiency and the weak global economic growth have slowed down the growth of overall coal demand in 2022.
As the largest coal consumption industry, the coal consumption of the power industry is expected to increase by more than 2% year on year in 2022. In contrast, coal consumption in non electric power industry is expected to decline by more than 1% year on year, mainly due to the decline in global steel production in the coming year.
Global coal demand will exceed 8 billion tons in 2022
The report predicts that the growth of global coal demand will slow down significantly in 2022, increasing by only 1.2%, but it will still set a new record of 8.025 billion tons, slightly higher than the level in 2013 (7.997 billion tons). According to the report, the slowdown in growth largely reflects the weakness of the global economy. It is estimated that the average global GDP growth in 2022 will be 3.2%. However, many factors are supporting the growth of coal demand. First, the tight supply of natural gas and the resulting high oil prices are driving some countries and companies to use relatively cheap coal. Secondly, the heat wave and drought in some regions have promoted the growth of power demand, and the gap left by the reduction of water and electricity must be filled by the schedulable coal-fired power generation in many countries. Secondly, nuclear power generation will be extremely weak in 2022, especially in Europe, where France has closed many nuclear power plants.
The report predicts that India will have the largest increase in coal demand in 2022, with a year-on-year growth of 7% (70 million tons); The second is the EU, with a year-on-year growth of 6% (29 million tons); Next is China, with a year-on-year growth of 0.4% (18 million tons). It is estimated that the coal consumption of the United States in 2022 will decline significantly, with a year-on-year decrease of 6% (31 million tons).
The International Energy Agency predicts that by 2025, the global coal demand will be stable at about 8 billion tons. However, in view of the current energy crisis and other uncertain factors (weather conditions, other fuel prices, changes in government policies, etc.), we cannot rule out the possibility of demand growth or reduction.
The report points out that China's development is likely to have a great impact on the prospects of global coal demand. China's coal consumption will grow strongly in 2021, but affected by the increase of renewable energy power generation, it is estimated that by 2025, China's coal demand will maintain an average annual growth rate of about 0.7%. From 2022 to 2025, China's renewable energy power generation will increase by nearly 1000 TWh, equivalent to Japan's total power generation in the current year. At the same time, India's coal consumption has doubled since 2007, with an annual growth rate of 6%, and will continue to be the engine of global coal demand growth.
The report predicts that by 2025, new renewable energy power generation will meet nearly 90% of the new power demand. With the moderate growth of nuclear power generation and the high price of natural gas, the global coal-fired power generation will increase slightly by 2025. Therefore, the global coal demand will remain stable in the forecast period when there is no substitute for coking coal in the short term.
Global coal production will reach a new historical high in 2022
Despite the deterioration of the economic outlook, with the tight supply of natural gas and high prices, the global demand for coal for power generation has increased. It is expected that the global coal output will reach a new historical high in 2022. China and India continued to increase coal production to overcome the supply shortage, offsetting the decline in Russian coal production caused by Western sanctions.
The report predicts that in 2022, the global coal output will increase by 5.4% year on year, reaching 8.318 billion tons, a record high, far higher than the record set in 2019. In 2021, as the economy recovers from the decline in demand caused by the epidemic, the growth of coal demand will drive the year-on-year growth of coal output by 3.9% to 7.888 billion tons. In absolute terms, the growth in 2021 is mainly due to a year-on-year growth of 4% (153 million tons) in China and 6% (48 million tons) in India. The increment of steam coal and lignite accounted for 98% of 295 million tons increment.
China and India are the world's top two coal consumers, the largest two coal producers, and the largest two coal importers. In response to rising prices and supply shortages, China and India increased their domestic coal production after the summer of 2021.
According to the data of the International Energy Agency, in March 2022, China's coal output reached a new monthly high, and is expected to reach an annual high in 2022. It is estimated that the annual coal output will increase by 8% year on year.
India has long tried to increase production to reduce its dependence on imported coal. In 2021, the country's coal production will reach 800 million tons for the first time. The International Energy Agency predicts that India's coal production will exceed 1 billion tons by 2025. As the world's third largest coal producer, Indonesia's coal production is expected to reach a new historical high in 2022. With the small growth of the United States and Europe, the global coal production is expected to reach 8.318 billion tons in 2022.
The International Energy Agency predicts that the global coal production will reach its peak in 2023, slightly higher than the level in 2022. By 2025, the global coal output will be reduced to 8.221 billion tons. China's coal output will be stable in the next few years, and India's output will continue to grow (an increase of 128 million tons), but the increase will be offset by the sharp decline in output in other regions. It is estimated that the United States will reduce 92 million tons, the European Union will reduce 68 million tons, Indonesia will reduce 40 million tons, and Russia will reduce 13 million tons.
Global Coal fired Power Generation Reaches a New Record in 2022
In 2021, as the strong global economic recovery and severe weather conditions boosted consumption, the total demand for electricity rebounded 5.2% year on year. In order to cope with low hydropower and weak wind conditions in some regions, coal-fired power generation increased by 8% (762 TWh) year on year. At the same time, coal consumption in the power industry increased by 8% (392 million tons) year on year.
The report predicts that the growth rate of global power demand is expected to slow to about 3% in 2022 due to the slowdown of global economic growth. The growth rate of power demand in China and India is higher than the average, and is expected to increase by 4% and 7% respectively.
The report points out that by 2022, renewable energy power generation can meet 88% of the increase in power demand, and the rest will be met by coal and natural gas power generation. At present, the global natural gas shortage and the resulting price rise are supporting the global coal-fired power generation, especially in the EU region. Some European countries have postponed plans to shut down coal-fired power plants and launched coal-fired power generation reserve capacity to reduce the use of natural gas in the power industry.
In general, the International Energy Agency estimates that the global coal-fired power generation will increase by 1.8% year on year to 103.39 TWh in 2022, a record high. It is estimated that the demand for coal for power generation in 2022 will increase by 2.4% year-on-year to 5.472 billion tons.
The report predicts that from 2022 to 2025, the average annual growth rate of global power demand will be 2.8%, and the absolute growth will be 2496 TWh. China's coal-fired power generation is expected to grow by 5%, India by 7% and Southeast Asia by 14%. At the same time, the United States will reduce by 18%, and the EU will resume the downward trend.
In 2022, the high price of natural gas will lead European power producers to turn to coal for power generation. The European power system is under great pressure due to the reduction of hydropower production due to weather conditions and the maintenance problems of French nuclear power plants. In response to the crisis, some European countries have increased coal-fired power generation, accelerated the deployment of renewable energy, and even extended the service life of nuclear power plants.
Under the dual effect of natural gas shortage and ensuring sufficient power supply pressure, some coal-fired power plants that have been shut down or are in standby state have been reopened. Among them, the coal-fired power generation capacity in Germany exceeds 10 GW. These measures have increased the coal-fired power generation in the EU. It is expected that the coal-fired power generation in the region will remain at a high level for some time to come. However, the International Energy Agency predicted in the report that the efforts to improve energy efficiency and develop renewable energy in the region will lead to a decline in coal-fired power generation and demand as early as 2024.
In India and China, gas power generation accounts for a very low proportion of total power generation, so the impact of soaring natural gas prices on their coal demand is limited.
Power coal consumption in non electric power industry remained stable
In addition to power generation, steam coal is also used for cement production and industrial and residential heating. According to the data of the International Energy Agency, in 2021, the consumption of thermal coal in non electric power industry increased by 2.8% year on year to 1.475 billion tons, accounting for 22% of the total consumption of thermal coal. Among them, the consumption of steam coal in India's non electric power industry has the largest year-on-year growth, reaching 16%, which is mainly due to the strong growth of industrial production. In China, the demand for thermal coal in non electric power industry increased slightly by 0.8%, thanks to China's efforts to reduce the use of thermal coal for residential heating.
It is estimated in the report that the demand for thermal coal for non electric power industry will remain stable in 2022. Due to the increase of industrial output, the demand for thermal coal in India's non electric power industry is expected to increase by 7% year on year in 2022. From 2022 to 2025, with the continuous expansion of industrial production, especially in India, the demand for non power sector thermal coal is expected to increase by 0.3% annually. At the same time, the consumption of thermal coal in China's non electric power industry will continue to decrease, and the growth of demand will be offset by the decline of consumption in energy intensive industries and the continuous efforts of heating and small industries to reduce coal consumption.
In 2021, the global consumption of metallurgical coal will increase by 1.3% year on year to 1.11 billion tons, which is due to the recovery of steel production in most major steel producing regions from the decline related to the epidemic. Among them, India grew by 13% (9 million tons), the EU by 13% (7 million tons), and the United States by 28% (4 million tons). At the same time, China saw a year-on-year decrease of 2.5% (19 million tons).
The report predicts that, by contrast, due to high energy prices and slowing global economic growth, the total global metallurgical coal consumption is expected to decrease by 2.7% (30 million tons) year on year in 2022. The largest drop is expected to be China, with a year-on-year decrease of 1.7% (12 million tons), followed by Russia, with a year-on-year decrease of 6% (4 million tons), and the EU, with a year-on-year decrease of 3.9% (2.3 million tons).
The International Energy Agency predicted that, from 2022 to 2025, the demand for metallurgical coal will be far lower than the level before the epidemic due to the low output of steel in China. In general, the decline in metallurgical coal consumption in the EU region, Japan, South Korea, Russia and China will be offset by the strong demand growth in India and other countries (mainly Southeast Asia).
The global steam coal trade volume will drop significantly by 2025
In 2021, the international coal trade will slowly recover from the impact of the COVID-19 on the economy, with the trade volume reaching 1.333 billion tons, accounting for 17% of the global coal demand. Among them, the trade volume of steam coal (including lignite and some anthracite) increased by 1.6% year on year, while the trade volume of metallurgical coal decreased by 2.3% year on year. The vast majority of coal traded in 2021 will be transported by sea.
Traditionally, coal trade was concentrated in the Pacific and Atlantic basins, while South Africa and Russia linked buyers and sellers. In recent years, with the decline of import demand in Europe, South Africa's coal exports have turned to the Pacific Ocean and the Indian Ocean, and the international coal trade pattern has changed. In 2021, the soaring natural gas price will increase the demand for European coal imports, reversing this trend. Germany imported 38 million tons of coal, surpassing Türkiye (36 million tons) and becoming the largest coal importer outside the Asia Pacific region.
The outbreak of the Russian Ukrainian conflict has triggered a series of sanctions and energy bans imposed on Russia by many countries and companies. As the third largest coal exporter in the world, Russia has been subject to sanctions, leading to a reshuffle of international coal trade flows. Some buyers, especially European buyers, are trying to find alternative supplies of Russian coal. In addition, due to the lack of railway transport capacity, some coal previously transported to Europe by rail or from ports in northwest Russia to Europe cannot be transported to eastern and southern Europe, which leads to a decline in Russian coal exports.
Russia's coal supply gap in Europe is largely filled by smaller coal producing countries such as South Africa, Colombia, Tanzania and Botswana. Indonesia's coal export ban at the beginning of this year to meet domestic demand shows the "flexibility" of its coal export policy. In contrast, the United States is no longer a "swing supplier". Due to problems such as insufficient investment, labor shortage and transportation bottleneck, despite the high price, American coal exports will decline slightly. At the same time, under the influence of rainstorm and flood, Australia's coal production declined, further promoting the tension of the market.
The International Energy Agency predicts that the global coal trade volume will reach 1.351 billion tons in 2022. By 2025, two basic trends will reshape global trade: first, countries, especially European countries, will adapt to and solve the current energy crisis and return to the track of eliminating coal; Second, the efforts made by China and India to ensure the security of energy supply will lead to an increase in domestic production and a decrease in imports. In general, from now to 2025, the volume of steam coal trade will decline significantly, and in 2025, it will decline by about 10% compared with the current. In contrast, the trade volume of metallurgical coal will increase by 6%.
The international coal price will reach a new historical high in 2022
In recent years, the international coal market has experienced ups and downs, and the price has also risen in ups and downs.
After falling to a 14 year low in 2020, steam coal prices will rebound strongly in 2021. Most international steam coal index prices reached a record high in October, reflecting the imbalance between supply and demand after the COVID-19 epidemic.
The imbalance between supply and demand and the high price of natural gas will push the price of steam coal to an unprecedented high in October 2021. Almost at the same time, China and India accelerated production to ease the shortage of market supply, and the coal price in the international market fell back to a lower level. When Indonesia issued an export ban in January 2022, the international market prices rose again. In late February, the Russian Ukrainian conflict triggered a surge in natural gas prices, pushing up coal prices. Since the summer of this year, with the easing of supply concerns, coal prices in the international market have fallen back. However, the rainfall in Australia further aggravated the market tension, especially pushing up the price of high-quality steam coal, which once exceeded the price of coking coal. With the gradual implementation of the EU's embargo on Russian coal from April to August, the price of Russian coal has been significantly discounted.
The outbreak of the Russian Ukrainian conflict led to the global thermal coal price soaring to a new historical high of US $380 per ton in March 2022, and the European thermal coal price caught up with the Australian thermal coal price. In contrast, due to the decline in demand and the increase in domestic production, the price of imported coal in South China is less affected. With the end of the heating season in the Northern Hemisphere, the global seaborne thermal coal prices fell briefly in April. In May, the price of steam coal in Europe and Australia rebounded again, and the price of high-quality steam coal in Australia directly climbed to a historical high of $425 per ton, because the flood hindered the coal production and transportation in the country.
The import price of steam coal in Europe was lower than that of Australia in early summer, but rose when Russia reduced its supply of natural gas to Europe in July. The growing concern that Russia may be completely out of supply has led to a surge in European gas prices, prompting utilities in the region to buy more coal and pushing the price of coal up to more than $400 per ton. The price of high-quality steam coal in Australia continues to rise, reflecting strong demand from Japanese utilities using this coal and the inability of Australian exporters to significantly increase their exports. In September, the price of high-quality steam coal reached $443 per ton. In Europe, gas and coal prices fell in September. In November, as the heating season began, the downward trend of coal prices in Europe and Australia began to reverse.
The report points out that although the profits of coal producers have reached a record high in the past two years, the investment in coal mining has not increased significantly. In general, the government, banks, investors and mining companies have insufficient interest in coal, especially in thermal coal investment.
