Guest Comment: Issue 3 2023

This occurred just before the EU’s peak natural gas winter stocking season shrivelled the coal market once again, however, the hiccup was not as fervid as last year’s – a result of the Russia-Ukraine war. The year 2023 has seen more stability than 2022, when the coal market experienced its momentous year.

Europe addressed the crux of the matter by heavily investing in infrastructure development for natural gas storage. This has diminished Europe’s urgency to reduce its dependence on Russia, and also removed the upward pressure on coal prices. Howbeit, this induced pressure on capital spending in the economy, which in turn resulted in inflationary strain. Apparently, the region is not fully immune from the vagaries of energy crisis.

From the beginning of the year, coal prices continued on the down track. The demand for coal has not seen any diminution during 2023, except for Europe where coal demand decreased amid higher natural gas imports. 2022’s higher prices propelled coal producers to increase the supply in the market. Thus 2023 experienced a prominent level of coal supply in a global market that supported the lower prices.

The Chinese economy reopened in the beginning of 2023 after three years of COVID-19 restrictions. The world eagerly anticipated that China would reignite the down-turning trends of world economic growth, but, quite the contrary, the deterioration continued.

The world trade pattern has further adjusted to the flow of demand. 2023 has marked the significant return of South African coal to the Indian and Pakistan regions, after facing a lack of demand from the EU, which embraced this resource with high premiums in 2022. Russian exports to China and India have continued to rise, and China has increased its imports from Mongolia too. This year also marked the end of China’s unofficial ban on Australian coal.

There have been a few incidents that posed a threat to the coal market outlook during the year – for example, China’s two major coal mine accidents, which collectively claimed 61 casualties. Safety inspections after frequent coal mine accidents are becoming more stringent, which has resulted in more coal mine closures and reduced production in China. India’s summer, which fuelled last year’s historic prices, was very mild this time round, resulting in reluctant purchasing behaviour.

These hindrances, however, appear minor in comparison to the favourable outlook for coal demand induced by the world’s major economies. In 2023, both developing and undeveloped countries are proceeding with the further expansion of coal-fired power plants. China and India are at the centre of this progress-approved, collectively 56 GW of new coal power capacity. All in all, 457 GW of proposed, on-grid coal plant capacity is under active development in China and India (according to CREA). Another example is India’s ‘Billion Dream’, which is expected to be achieved in 2024. South East Asia in sum is expected to be the second driver of coal consumption growth after China and India.

The El Nino, which has led to drier-than-usual southwest monsoon seasons for the first time in four years, has increased heatwaves and droughts. The weather conditions have increased the electricity demand for cooling in Asian countries, which will, in-turn, increase coal demand.

In summary, coal prices went down and trade went up in 2023. Irrespective of circumstances, the year has continued to prove that the story of coal’s dominance still has not reached its ‘climax’. The events of 2023 have provided strong proof that ‘King Coal’ is not going anywhere.

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