Coal Price Forecast 2023 and Outlook

Coal price forecast and its outlook for 2023 is off to a hazy start. The last two years witnessed an unusual jump in coal use. As the world rebounded from the COVID-19 crisis, coal use surged by 6% in 2021, according to the International Energy Agency (IEA).

Despite a slowing global economy and lockdowns in China, the trend continued in 2022. Soaring natural gas prices following the Russia-Ukraine conflict led to increased reliance on coal to generate power.

As a result of this fuel switching, along with supply and demand imbalances, coal usage increased by 1.2% in 2022. With this rise, it reached a new record of 8,025 tonnes.

“Coal demand is stubborn and will likely reach an all-time high this year [2022], pushing up global emissions,” Keisuke Sadamori, the IEA’s energy markets and security director, said.

“At the same time, there are many signs that today’s crisis is accelerating the deployment of renewables, energy efficiency and heat pumps – and this will moderate coal demand in the coming years,” he said.

Europe’s Unexpected Return to Thermal Coal

Faced with gas shortages and lower hydro and nuclear output, several European nations restarted old coal power plants. Despite pledges to phase out coal, countries like Germany, Austria, France and Finland all turned back to fossil fuels.

In Germany, the government gave the green light to restart 27 coal-fired power plants until March 2024. In Finland, hard coal usage increased by 10% year-on-year in 2022 due to higher electricity and heat production demand. Even the UK decided to warm up coal stations this winter in case additional power was needed.

However, Europe’s growing reliance on the world’s most polluting fossil fuel is likely a temporary emergency measure. With the region accelerating its deployment of renewables, the IEA expects EU countries to resume phasing out coal from 2024.

Asian Countries Look to Coal for Energy Security

Meanwhile, in Asia, skyrocketing LNG prices and looming energy shortages forced a number of countries to fall back on coal.

Pakistan, for example, recently launched a 330-megawatt (MW) coal power plant and is looking to exploit domestic coal reserves. In 2020, the former governor said it would not approve more coal power plants and would pivot to renewables. However, Pakistan wants to replace costly fuel imports by developing its massive, newly discovered coal deposits.

Bangladesh also plans to ramp up coal-fired power generation to ensure supply security and address frequent blackouts. In September 2022, the country announced it invested in 4.3 gigawatts of coal power.

India, which saw the largest increase in coal demand in 2022, plans to reopen its abandoned coal pits. Last year, the government announced that it would lease more than 100 dormant coal mines to private miners to increase production. Additionally, India plans to enforce an emergency law to maximise the output of power plants that run on imported coal. It has 17,600 MW of such power plants.

Indonesia, the largest coal consumer in Southeast Asia, is still going ahead with the construction of 13 gigawatts of coal plants. This is despite recently signing a USD 20 billion energy-transition financing deal with industrialised countries.

Coal Prices Forecast 2023

With the sharp increase in LNG prices sparking demand for more price-competitive options, thermal coal prices soared in 2022.

In June, dwindling Russian gas flows pushed API2 coal prices to an all-time high of USD 425/t. API2 is the price benchmark for coal imported to northwestern Europe.

In Australia, flooding in the first half of 2022 hampered coal production and exports. This triggered Newcastle’s free on-board (FOB) thermal coal prices to skyrocket to USD 425/t in May. FOB Newcastle is the price benchmark for seaborne thermal coal in the Asia-Pacific region.

While the largest coal producers saw record profits in 2022, there is little investment appetite for new coal projects. Meanwhile, coal miners witnessing profits across major economies haven’t been able to expand their operations as they normally would. This is because most banks are standing by their climate pledges to restrict lending to the sector.

Moreover, since the beginning of 2023, Asia’s seaborne thermal coal prices have been falling as demand from China and India declines. With natural gas prices continuing to plummet, coal’s comeback may be short-lived.

Coal Outlook 2023 and Beyond

It remains unclear where coal demand is headed. The IEA says that “significant uncertainty hangs over the outlook for coal due to the energy market turbulence”.

What is certain, however, is that developments in China will largely determine the direction global coal demand will take. After all, China accounts for more than half of the world’s coal demand and is the world’s largest coal consumer. According to the IEA, its power sector alone accounts for one-third of global coal consumption.

Over the last three years, China’s zero COVID policy saw reduced economic activity levels and energy usage. With China reopening its borders in 2023, economic activity is set to accelerate, possibly leading to increased coal consumption.

The IEA predicted that China’s coal consumption will grow at an average of 0.7% annually by 2025. It attributed this limited growth to a projected increase of 1,000 Terawatt hours (TWh) in renewable power generation through 2025.

Coal to Cover a Fraction of New Power Demand

At a global level, the IEA expects coal demand to plateau around the 2022 level of 8 billion tonnes through 2025. Higher coal prices, strong deployment of renewables and weakening economic growth will all play a part in tempering the increase in global coal demand.

The energy agency also foresees renewables meeting 90% of new electricity demand by 2025, with coal and gas covering the remainder.