The world coal market is a global industry, with coal produced in more than 50 countries and consumed in over 70 countries. The large number of coal suppliers that are active on the coal market and the ease of transportation by rail or by sea ensure efficient and competitive functioning of the global coal market.

 


Global Coal Production and Trade in 2015


9_global-coal-production-and-trade-in-2015

Sources: Euracoal; VDKi 2016; Dr. Lars Schernikau: “Why Coal Continues to Power the World – Economics of the International Coal Trade”, Springer 2017.

The dynamics of the global coal trade are best portrayed by the following numbers: The coal market has risen from 357 Mt in 1999 to 1,2 Mt traded in 2015. 92% of this volume is seaborne trade while the remaining 8% is cross-border overland trade. Furthermore, over 75% of all seaborne trade is steam coal. Due to transportation costs, the seaborne coal market is traditionally divided into two sub-markets: the Atlantic market, with the most significant import countries being Germany, Spain and the UK, and the Pacific market, with the biggest importing countries being Australia, China, Indonesia and Japan.

 


Seaborne Trade of Steam Coal in 2015


10_seaborne-trade-of-steam-coal-in-2015

Sources: BLS Portco; Perret Associates; Chinese Customs Data; Dr. Lars Schernikau: “Why Coal Continues to Power the World – Economics of the International Coal Trade”, Springer 2017.

 

There are various reasons for this rapid development in the global coal trade:

  • high growth dynamics of developing countries, especially China and India
  • decreasing coal production in Europe
  • quality of coal
  • consumers’ requirements for particular parameters

Nevertheless, its affordable price in comparison to other energy sources is foremost a strong incentive for using coal.
The coal trade market is rapidly developing into a commodity market. An increasing number of transactions are based on coal indices (especially API2 and API4) and coal derivate volumes have reached an fortyfold of the physical coal trade volume in Europe in 2016 (assuming 6 Bt traded API2 paper vs. about 150 Mt imports into Europe). Global multiple is “only” about 7 (7 Bt paper vs. 1 Bt physical).

 


Coal Derivative Volume 2001-2016


11_coal-derivative-volume-2001-2016

Note: OTC volume difficult to track as not all OTC volumes are reported, most likely OTC volumes are higher than illustrated herein
Source: Dr. Lars Schernikau: “Why Coal Continues to Power the World – Economics of the International Coal Trade”, Springer 2017.

 

PRICE DEVELOPMENT IN THE COAL MARKET
The historical view of the coal market shows that coal prices have remained more stable and affordable than the prices of oil or gas. After the recent price hikes in summer 2008, coal prices have already recovered and the market has returned closer to its equilibrium. Coal price projections indicate that coal will remain the most affordable resource in the following decades but volatility will likely increase.
Affordable prices for electricity generation are of extreme importance for the efficient functioning of industry and the competitiveness of any economy. Availability of coal and an efficiently functioning coal trade market support a balanced and sustainable energy mix which underlines the significance of coal for any economy.

 


Coal Price Development, API2 and API4 in USD


12_coal-price-developments-api-2-and-api4-in-usd

Sources: McCloskey Coal Price Index; Dr. Lars Schernikau: “Why Coal Continues to Power the World – Economics of the International Coal Trade”, Springer 2017.

 

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 Transportation of Coal


Coal can easily be transported and the availability of various modes of transportation makes it simple and safe. The mode of transport mostly depends on the distance to be covered. Over 90% of all transported coal is handled with large bulk carriers:

  • Handysize – 40 to 45 kt
  • Panamax – 60 to 80 kt
  • Capesize – over 80 kt

In 2015, coal accounted for more than 40% of all dry bulk shipping and its share is most likely to increase further in the future. However, the transportation costs from the coal mine to the consuming power plant can often account for 80% to 90% of the final price of coal.


 Loaded Bulk Commodities 1970-2015


13_loaded-bulk-commodities-1970-2015

(1) Grain includes wheat, maize, rice, barley, oats, rye, sorghum, soybeans, etc.
(2) Steel products include iron, steel, scrap, etc.
(3) Coal includes steam coal, anthracite, coking coal, coke
Note: Numbers are approximate, 2014 and 2015 preliminary
Sources: VDKi 2015;  Dr. Lars Schernikau: “Why Coal Continues to Power the World – Economics of the International Coal Trade”, Springer 2017.