Coal Prices Explained
As you can see coal prices are fluctuating. But why is that? And is there a way to predict its price?
Why are coal prices fluctuating?
Coal prices are still surging despite the alarming threat of global warming. Experts predicted that its price will maintain its stand in the market in the coming years. Here are the following reasons:
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% in 2021 due to its energy security program.
2. Production Costs
The increasing labor shortages, coal mining equipment, and transportation all add up to the general coal price spike in the market.
In 2022, a sharp and collective increase of 22% in the total production costs sent an all-time high of $457.80 per coal MT.
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 in winter for heating purposes.
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 law to regulate coal production and emission.
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
- Currency Exchange Rates
- Alternative Energy Sources
- Trade Policies and Regulations
- International Trade
Where does coal come from?
Coal is the most abundant fossil fuel on earth and 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%.
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.