2/4/24, 11:06 EIU-coal

Coal
World | Coal

April 1st 2024

Stocks and prices

EIU expects that benchmark Newcastle thermal coal prices will remain volatile in 2024 and 2025
owing to various Western restrictions on imports of Russian energy supplies (including coal) and
broader geopolitical disruption to energy supplies.
We expect disruption to shipping in the Red Sea caused by attacks by Houthi rebels to have only a
minor upward impact on coal prices. The attacks have increased freight rates for coal as more
cargoes avoid the Suez Canal and travel via the Cape of Good Hope, creating much longer voyages
between the Asia-Pacific and Europe. However, coal flows between these regions constitute a small
proportion of international coal trade, and we expect a modest impact on European coal prices
rather than a global effect.
Prices were volatile in the second half of 2023, in the US$120-160/tonne range. Having touched a
low of US$116/tonne in late January 2024, prices had rebounded to US$129/tonne by late February.
We now expect prices to average US$130/tonne in the first quarter of 2024, compared with a
forecast of US$150/tonne previously. This downward revision is due to the northern hemisphere's
2023/24 peak winter demand period having passed without any energy supply crunch in the EU.

Indian coal demand growth will steam ahead

We expect coal demand in India, the world’s second-largest coal consumer, to grow strongly in
2024, in line with surging electricity demand and economic growth. The International Energy
Agency (IEA) expects the 7% annual growth in India's electricity demand in 2023 to remain mostly
flat until 2026, supported by strong economic activity and expanding ownership of air
conditioners. Strong renewables and hydropower growth will partly constrain growth in coal-fired
electricity. The IEA expects the share of renewables in electricity generation in India to increase
from 21% in 2023 to 25% in 2026.

Coal: prices
2022 2023 2024 2025 2026
Pricesa
1 Qtr 243.6 237.6 130.0 140.0 100.0
2 Qtr 352.3 164.7 130.0 100.0 90.0
3 Qtr 413.3 151.9 100.0 80.0 -
4 Qtr 370.4 136.9 160.0 90.0 -
Year 344.9 172.8 130.0 102.5 -
% change 149.8 -49.9 -24.8 -21.2 -
a Australian, thermal, Newcastle/Port Kembla, US$/metric tonne.

Sources: World Bank; EIU.

We expect coal demand in China, the world’s largest consumer, to weaken in 2023, albeit to the
second-highest total on record. According to the National Bureau of Statistics, China's coal
consumption grew by 5.6% year on year in 2023, and we have adjusted our 2023 forecast to reflect
this. Slower economic growth and a continued rapid expansion of highly competitive renewable
capacity will reduce demand for coal power in 2024 and 2025. According to the IEA, renewable

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energy sources will meet all new electricity demand in China over 2024-26. However, coal power
will be essential to meet any generation shortfalls resulting from disruptions to hydropower output
or slow grid investment.
Official data suggest that coal accounted for 55.3% of total energy consumption in China in 2023,
0.7 percentage points lower than in 2022, while cleaner energy like natural gas, hydropower,
nuclear power, wind power and solar power accounted for 26.4%, 0.4 percentage points higher.
Structural factors will constrain demand growth in Europe in 2024/25. Relatively high prices for
carbon allowances under the EU's Emissions Trading Scheme (EU ETS) will limit profit margins at
coal plants more than natural gas plants owing to the higher carbon emissions from coal
generation. Carbon prices declined by about 40% from the record highs of €100 (US$110)/tonne
between February 2023 and February 2024 as lower industrial activity in Europe weighed on
demand for EU carbon allowances. However, carbon prices remain more than triple the 2016-20
average. They are expected to increase in the coming years as the number of allowances supplied to
the market declines and business exemptions are phased out, boosting demand. Even in the event
of another energy price crunch in Europe, the potential for switching to coal power will be limited
to ongoing coal plant retirements, particularly in western Europe. Most recently, in March 2024
Italy's government confirmed that the country was on track to stop using coal by the end of 2025.
Furthermore, the EU import ban on Russian coal since August 2022 has pushed up coal prices,
partly because countries in the bloc have to import more from further afield, for example from the
US, Colombia, South Africa, Indonesia, Kazakhstan and Australia.

Coal: supply and demand

(m tonnes)
2021 2022 2023 2024 2025
Production 7,803.1 8,233.8 8,448.0 8,373.0 8,235.0
Consumption 7,541.0 7,724.1 7,961.0 7,794.0 7,690.0
Balance 262.1 509.7 487.0 579.0 545.0
Sources: Energy Information Administration (EIA); EIU

Demand
In a report released in December the International Energy Agency (IEA) said that global coal
demand peaked in 2023 and would decline in 2024-26. In line with our view, the IEA forecasts that
more robust coal demand in India and the Association of South-East Asian Nations (ASEAN)
region will be offset by declines in the EU, the US and, critically, China. According to the agency,
rapid renewable energy growth will be the main factor pushing coal out of the generation mix in
many countries.
We expect coal demand to contract by 2.1% in 2024. Although we forecast a 2.3% expansion in the
global economy in 2024, this will have a limited impact on coal demand owing to relatively high
energy prices and structural factors that affect coal use in thermal electricity generation, such as
cheaper renewables and clean energy policies. We expect these structural factors to cause coal
consumption to contract by a further 1.3% in 2025, to the lowest level since 2021. A significant
decline in demand in Europe (which will resume coal plant retirements after securing more
alternative gas supplies to plug the gap left by Russia) and the US will offset increased coal
demand in India.

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China's coal consumption will decline in 2024

We previously estimated that coal consumption in China expanded by 3% in 2023 to a new record,
buoyed by recovering economic growth. Following the latest official preliminary data published on
February 29th, we have revised this growth estimate to 5%. We forecast a contraction of 3% in 2024,
owing to slower economic growth and a continued rapid rollout of renewable energy capacity. We
expect real GDP growth to slow from an estimated 5.2% in 2023 to 4.7% in 2024 and 4.4% in 2025.
We forecast that renewable energy capacity (non-hydro) will expand by 12% in 2024, building on
growth of 26% in 2023. Although China's coal imports remain robust, surging by about 62% year on
year in 2023, this is mainly due to transient factors, including lower hydropower output and
industry restocking.
In a report released in late January, a trade association, China Electricity Council, forecast that
power consumption in the country would increase by 6% year on year in 2024, after rising by 6.7%
in 2023. These growth forecasts are higher than our own. The council estimates that non-fossil
power capacity, including nuclear power and renewables, exceeded thermal power capacity for the
first time in 2023, accounting for more than half of the total installed capacity. According to the
report, the number of hours of coal-fired power plants increased by 92 hours year on year in 2023.
The council forecasts that "new energy" capacity—or renewables—will exceed coal power capacity
for the first time by end-2024. We forecast double-digit growth rates of renewables in 2024-25. The
government is committed to reaching peak greenhouse gas emissions by 2030 and achieving net
zero by 2060.
The construction of new coal power plants in China will not necessarily increase consumption in
the country. To increase energy security, the government is encouraging coal-fired power producers
to expand their capacity, even though much of this capacity may never be needed. In
November 2023 the government confirmed a system of guaranteed payments to coal-fired power
producers based on installed capacity, not generation. This subsidy will be funded through a levy
on industrial and commercial consumers. Analysts at Wood Mackenzie, a global research and
consultancy group, noted in a report that a pipeline of more than 200 GW coal-fired power plants
under development in China would result in more flexible plants that burn less coal and are
designed to back up intermittent power generated by renewables. The positive impact on overall
coal demand from these new coal power plants will also be offset by the closure of older, less
efficient coal plants. In late February 2024 China's state planner, the National Development and
Reform Commission (NDRC), said that it was open to constructing more gas-fired peaking plants
to improve power system flexibility. It also said that coal-fired power plants should be renovated by
2027 to enable more flexible start-up times so that they can back up renewables during peak hours.

US coal consumption will continue to decline

In the US, coal consumption will continue to decline as coal-fired power plant retirements and
rising use of renewables limit demand. According to the monthly short-term energy outlook of the
US Energy Information Administration (EIA) in February 2024, coal consumption by the power
sector will fall by 7% in 2024 and 6% in 2025 as new solar and wind generating capacity comes
online and 11 GW of coal-fired plant generating capacity is retired. The 6% decline in 2025 is less
than the 8% decline forecast in January owing to the EIA's expectation of slightly more electricity
generation in 2025 and marginally fewer renewable capacity additions than previously anticipated.
Based on these forecasts, the EIA expects the share of electricity generated by coal in the US will
fall from 17% in 2023 to 15% in 2024 and 14% in 2025. Almost 60 GW of coal capacity has been
retired since the end of 2018, a reduction of 25%. Natural gas remains a cheaper alternative to coal
for power generation in the US, and renewables growth is also pushing coal (and, to a lesser extent,
gas) out of the market.

Coal consumption continues terminal decline in Europe

According to the German energy regulator, Bundesnetzagentur, power generation in Germany from
hard coal fell by 36.8% and from lignite by 24.8% in 2023. Electricity produced from natural gas
increased by 31.3% year on year. Reduced electricity demand, lower gas prices and increased
renewable energy generation drove this decline in coal-fired power generation.

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In its December report, the IEA estimated that thermal coal imports into the EU returned to a
downward trajectory in 2023 after two years of increases. The IEA estimated that thermal coal
imports had fallen by about 44% to 46m tonnes, a rate of decline last recorded in the pandemic
year 2020. We expect coal to play a back-up role in European power generation in the region's
2023/24 and 2024/25 winters. Despite current healthy gas storage levels, shortages cannot be
ruled out.
Although the war in Ukraine will delay the phasing-out of coal power in Europe in 2024-25, the
long-term decline will continue. Coal and natural gas will be phased out more aggressively in
Europe between now and 2030 owing to the war. Although the carbon prices are currently much
lower than in 2023, we expect renewables to generate a rapidly increasing share of electricity in
Europe in 2024-25, given policy support. This trend will continue, as EU member states must
reduce emissions by 55% from 1990 levels by 2030—a significantly higher target than the previous
benchmark of 40%. The EU has also revised its target of 32% of renewables in final energy
consumption by 2030 to 42.5%. Further reforms to the ETS will make the market environment for
coal generation more challenging in the near future.
The UK plans to phase out most coal by 2024, Greece and Italy by 2025, and the Netherlands by
2030. Spain's phase-out is well under way, with the remaining plants expected to go offline by 2030
at the latest. In August 2023 the Spanish government accepted a request by Endesa, the country's
largest electric utility company, to close its 1.5-GW As Pontes coal plant by August 2024. The
company plans to develop about 1 GW of wind-power projects in the Galicia region to compensate
for the lost capacity.

India's coal demand is rising rapidly

According to India's Ministry of Coal, coal-fired power generation increased by 10.4% year on year
in January 2024. From April 2023 to January 2024 coal-fired power generation increased by 10.1%
year on year, outstripping a 6.6% increase in total electricity generation. These figures are
supported by estimates from India's Central Electricity Authority (CEA).
In a statement dated February 26th 2024, the ministry noted that, despite surging power demand,
coal imports decreased by 36.7% year on year to 19.4m tonnes between April 2023 and January
2024, which "exemplifies the nation's steadfast commitment to achieving self-reliance in coal
production and minimising overall coal imports".
In a separate statement on February 26th, the ministry noted that over the past decade thermal
power, predominantly fuelled by coal, had consistently accounted for more than 70% of total power
generation in India. Officials stated that despite significant progress expanding renewable energy
generation, the scale of electricity demand growth would require continued reliance on thermal
power, which is projected to account for 55% of total generation in 2030 and 27% in 2047.
According to government officials and documents from last year, India aims to add 17 gigawatts of
coal-based power generation capacity within 16 months; however, there are significant
uncertainties surrounding the running hours of these coal plants and whether new power plants
will increase generation capacity or replace older plants.

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Coal: consumption
(m tonnes unless otherwise indicated)
2021 2022 2023 2024 2025
China 3,850.6 4,000.0 4,200.0 4,075.0 4,000.0
India 1,100.0 1,170.0 1,230.0 1,270.0 1,230.0
US 504.0 450.0 400.0 395.0 360.0
Russia 204.2 205.2 206.0 200.0 200.0
Germany 134.4 140.0 120.0 110.0 85.0
Japan 177.7 172.4 165.0 167.0 150.0
South Africa 181.2 177.6 181.0 180.0 170.0
South Korea 120.1 117.7 115.0 117.0 115.0
Poland 100.0 115.0 100.0 100.0 100.0
Australia 120.3 117.9 114.0 100.0 100.0
Others 1,048.5 1,058.4 1,130.0 1,080.0 1,180.0
World total 7,541.0 7,724.1 7,961.0 7,794.0 7,690.0
% change 4.4 2.4 3.1 -2.1 -1.3
Sources: EIA; EIU

Supply
We estimate that coal production increased in 2023, driven by higher output from China, Indonesia
and India. The IEA's December 2023 coal report noted that global production was on track to peak
in 2023, in line with demand. We expect production to fall in 2024 and 2025 as the high prices that
encouraged strong production growth in 2021-22 recede and the market returns to a significant
surplus. However, this is subject to geopolitical developments. Pledges by the EU and the G7
nations to reduce dependence on Russian energy will boost exports from coal suppliers, including
Australia, the US, Colombia, South Africa and Indonesia. The EU banned coal imports from Russia
(Germany and Poland were the biggest importers) from August 2022. In a research note published
in November 2023, the EIA noted that US coal exports increased by 5.7m tonnes in the 12 months
after EU sanctions on coal from Russia went into full effect in August 2022. The increase was
driven almost exclusively by a 22% jump in US coal exports to Europe.

China's output temporarily increased in 2023

We expect coal production in China to stagnate in 2024 and then decline slightly in 2025, partly
owing to enhanced safety measures, including safety checks, improvements to mining facilities and
a tightening of approval processes in response to fatal mine accidents. For 2023 we estimate that
production in China increased by about 4.7% year on year to 4.5bn tonnes, excluding small
producers, and 470m tonnes were imported, up by 61.8% year on year.

US coal output will increasingly be diverted to export markets

We expect US coal production to fall, albeit less steeply than the EIA's forecast of 19% in 2024.
According to the EIA, US production declined by about 2.5% year on year in 2023. Domestic
production will fall despite a rise in coal exports. The administration of the US president, Joe
Biden, is unlikely to support the country's coal mining sector; its policy to make US power
generation emissions-free by 2035 entails the elimination of coal-fired power altogether unless it is
supported by carbon capture and storage technology.

Rapid production growth will make India more self-sufficient

India is ramping up coal production, with output 10.3% higher year on year in January 2024,
according to the Ministry of Coal. Coal India Limited (CIL), the country's largest state-owned
producer, reported 9.1% year-on-year growth in that month. Production in April 2023-January 2024
stood at 784m tonnes, up by 12.2% year on year. We do not expect Indian production to decline in
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2024 or 2025, as coal-fired power generation is expected to increase. However, the forecast is
sensitive to the speed of the rollout of power generation from renewable sources such as solar and
wind energy.

Australia's output will stagnate in 2024-25

Australia has pledged to achieve net-zero emissions by 2050 but has not set a phase-out date for
coal consumption, and coal exports are not expected to be affected by the target, at least in the
medium term. We expect production to decline slightly to 440m tonnes in 2024 and then to
stagnate in 2025. The medium-term outlook depends mainly on export opportunities, which rely on
demand in Asian markets. One advantage that Australian exporters have is that the higher quality
of their coal makes it harder for China to find a replacement. China's regulations surrounding coal
power plant emissions mean that high-quality coal is preferred for use in plants.

Coal: production
(mine output; m tonnes unless otherwise indicated)
2021 2022 2023 2024 2025
China 4,000.0 4,300.0 4,500.0 4,500.0 4,400.0
India 773.0 850.0 920.0 920.0 930.0
US 524.0 550.0 520.0 460.0 430.0
Australia 425.0 410.0 444.0 440.0 440.0
Indonesia 559.6 600.0 630.0 630.0 630.0
Russia 437.0 431.0 418.0 400.0 400.0
South Africa 229.0 232.0 243.0 250.0 240.0
Germany 125.0 130.0 83.0 80.0 75.0
Poland 104.6 102.0 92.0 90.0 90.0
Kazakhstan 115.0 116.4 118.0 119.0 119.0
Others 510.9 512.4 480.0 484.0 481.0
World total 7,803.1 8,233.8 8,448.0 8,373.0 8,235.0
% change 5.7 5.5 2.6 -0.9 -1.6
Sources: EIA; EIU

The Economist Group © 2024 The Economist Intelligence Unit Limited. All rights reserved.

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