Coal Prices Explained

Coal prices steadily remained elevated as Japan and Korea increased their purchases of high-grade coal. Data from Kpler showed that China led the way with its seaborne thermal coal imports of 32.08 million tons. Additionally, Japan imported nearly 10.64 million tons of seaborne thermal coal.  Furthermore, Korea stocked up with 8.6 tonnes of high-grade thermal coal. As a result, the combined Asian imports hit records which fuel the volatility of coal prices.

On the supply side, coal production jumps in India as the country’s electricity consumption significantly increases. In the U.S., the EIA posted an uptick in its coal power due to the elevated natural gas prices. However, the European coal market started to cool down as most countries accelerated their efforts to wind down fuel consumption to give way for clean energy capacities, such as solar and wind. 

Why are coal prices fluctuating?

1. Supply and Demand

The imbalanced equilibrium between coal demand and supply is increasing every year. China, the world’s largest coal producer, and consumer is the key determiner of constant coal price hikes in the market. According to China’s National Bureau of Statistics, its coal consumption is more than 50% due to its energy security program. Thus, the country’s huge appetite influences coal prices globally.

2. Production Costs

The increasing labor shortages, coal mining equipment, and transportation all add up to the general coal price spike in the market. For instance, a sharp and collective increase of 22% in total production costs sent an all-time high of $457.80 coal per metric ton. Adding pressure on its value is the current war between Ukraine and Russia (the country has extensive coal reserves and the sanctions from the West aggravate its global production, leading to an increase in coal import prices).

3. Weather Conditions

Coal production is at its lowest peak in winter due to the cold biting weather and difficult transportation. Conversely, demand for coal is at its highest during this season for heating purposes. Thus, this common scenario in the international market is a perfect fuel for coals’ skyrocketing prices.

4. Alternative Energy Sources

The shift to a sustainable program makes alternative energy sources a complete candidate against coal energy. Thus, these environment-friendly and cost-effective energy sources threaten coal demand and marketability.

5. Government Policies

Since coal energy is one of the top contributors to global warming, the government issues laws to regulate coal production and emissions. Thus, this strict regulation makes coal production even tighter and results in higher demand and prices.

Which variables impact the price of coal?

• Supply and Demand
• Production Costs
• Weather Conditions
• Alternative Energy Sources
• Government Policies
• International Trade

Where does coal come from?

Coal is the most abundant fossil fuel on earth. Also, it has been the most used fuel for thousands of years.

According to archeological evidence burning of coal started in the Bronze Age for food consumption, survival, and tradition. Coal mining as an industry began in 18th-century Europe and the first coal mine to open was in Newcastle in the 13th century.

Additionally, the Industrial Revolution in Britain made coal mining a large-scale industry, powering steam engines, machinery in factories, and heating systems in homes and buildings.

Furthermore, the first commercial mining started in the 1740s in Virginia and gradually expanded around the United States.

This led to the demand and expansion of large-scale mining coal mines in Europe and North America and ultimately, gave rise to their economic growth.

Overall, there is plenty of coal deposits in the world but the largest reserves are geographically located in China, the United States, Russia, India, Australia, and Indonesia which makes them the top coal producers and consumers in the world.

What is the future price of coal?

Though it is the first contributor to global warming, coal remains an important source of energy globally.

Generally, its market price threads between the energy demand from industries and the shift to sustainable practices from pro-green environment countries. For example, the newly passed Australian legislation that aims to cap greenhouse gas emissions required the country’s coal producers to cut yearly production output to 5%.

Additionally, wind energy gradually overtakes coal generation in Europe as the region implements stricter sustainable energy approaches. The U.S. solar and wind generation capacity (with more projects coming in line) increases yearly to stabilize coal demand. This shift from once-major importers is an emerging price determiner of coal in the coming years.

Overall, this tug-of-war scenario will highly create coal price fluctuation in the market and reshape the global energy trade as demand always stays robust in primary commodities. Thus, the coal price will be $140 per metric ton by 2026.