Top Trends Affecting Coal in 2023, according to the Coal Market Forecast for 2023

What will happen to coal when the globe switches to renewable energy sources? Continue reading to find out what experts predict for the coal market in 2023.

2021 saw an increase in coal prices, and 2022 was also a good year due to rising demand brought on by the energy crisis.

However, as governments strive for cleaner sources of power, the use of renewable energy is increasing, leaving many to question what coal’s future could hold. Continue reading to discover more about the performance of coal in 2022 as well as what forecasters anticipate.

What was the state of coal in 2022?

Thermal coal prices, which are frequently used in power plants to produce electricity, began the year trading higher due to a lack of supply and the impact of Russia’s invasion of Ukraine on the industry.

FocusEconomics analysts stated in March that “the war poses a direct danger to Russian supply through destruction to infrastructure and shipping and an indirect risk through Western sanctions.” The conflict and still-in-effect export limitations for Indonesia have consequently increased the likelihood that Australian coal will be in demand.

Similar to that, the invasion of Ukraine by Russia led to a rise in the price of metallurgical coal. Coke, the main carbon source utilized in the production of steel, is produced using metallurgical coal, sometimes referred to as coking coal.

According to FocusEconomics analysts, “this comes in an already-tight market, with output in Australia continuing to be affected by severe rains plus supply disruptions and with Indonesian exports still subject to restrictions.”

Despite intentions to achieve net-zero emissions, rising oil and gas costs in 2022 caused several nations to expand their coal use in spite of their clean energy targets.

Additionally, Australia’s output was still negatively impacted by the bad weather and employee absenteeism due to COVID-19. Australia has the third greatest reserves in the world and is the second largest exporter of coal in the world. FocusEconomics stated in a May research that “meanwhile, a potential EU ban on Russian coal implies prices are likely to continue elevated in the short term.”

The International Energy Agency (IEA) claims that in 2022, typical trade patterns for coal were severely disrupted as prices skyrocketed and demand increased by 1.2 percent, reaching an all-time high and breaking the 8 billion metric tons (MT) barrier for the first time.

The greatest consumer of coal, power generation, is anticipated to increase by little over 2% in 2022, according to the international group. “In contrast, reducing iron and steel output under the economic crisis is predicted to produce a more than 1% reduction in coal usage in industry.”

Despite the fact that many people may be wondering whether investments in the industry have increased in light of the recent price increase, the IEA reports that outside of China and India, where domestic production has increased to lessen reliance on imports, there are no clear indications that investment trends are changing. The agency noted that “governments, banks, investors, as well as mining firms, continue to exhibit, in general, a lack of appetite for investment in coal, particularly thermal coal.”

What aspects of the coal market will change in 2023?

S&P Global Commodity Insights predicts that China and India would likely increase domestic coal output in 2023, which might have a negative effect on US seaborne coal demand.

According to the company, China would produce 4.9 billion MT of domestic coal in 2023, up from 4.5 billion MT in 2022. India is expected to produce 950 million MT of coal in 2023, up from 840 million MT in the current year.

The IEA predicts that until 2025, the world’s coal demand will stabilize at a level around 8 billion MT.

“However, a lurch into growth or contraction is possible given the current energy crisis and all of its uncertainty. The organization states in a study on coal that this might be caused by changes in the global economy, weather patterns, fuel pricing, or governmental regulations, among many other possible factors.

The need for coal is expected to decline in industrialized nations over the next several years as renewable energy sources progressively take its place as a source of power. However, the IEA predicts that Asian rising and developing nations will continue to consume more coal to fuel their economic expansion even as they adopt more renewable energy sources.

At the end of 2022, Keisuke Sadamori, the head of the IEA’s energy markets and security, stated that “the world is near to a peak in the use of fossil fuels, with coal set to be the first to fall, but we are not there yet.”

“Global emissions will increase this year as a result of the persistently strong demand for coal. At the same hand, there are numerous indications that the current crisis is speeding up the adoption of renewable energy sources, energy-efficient technologies, and heat pumps, which will reduce the demand for coal in the years to come. A safe and sustainable future will be made possible by government initiatives.

The demand for coal is anticipated to rise most in India, with the EU and China trailing behind at 6% and 0.4%, respectively.

As the causes of the record price spike of mid-2022 continue to unravel, the Australian Office of the Chief Economist anticipates that the current decrease in thermal coal prices will last.

The group stated that “thermal coal prices remain elevated despite persistent weather interruptions and problems with access to finance/insurance.” The Newcastle benchmark price (6,000 kcal) is predicted to drop from an average of US$360 per tonne in 2022 to about US$200 in 2024 (still significantly above historical norms) when weather conditions moderate.

Similar to that, thermal coal prices might plunge by year’s end to their lowest level since the start of the Ukraine War. FocusEconomics experts predicted that “this reduction will be caused by lower demand growth stemming from a weakening global economy.”

Investors interested in coal should monitor a number of variables, including the impact of sanctions on Russian energy, the possibility of ending China’s informal embargo on Australian coal, the Australian government’s climate change strategy, and increased rainfall in Australia.

FocusEconomics claims that the situation for the price of metallurgical coal is similar, with prices expected to continue to decline in 2023.

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