Coal is the world’s most abundant and secure fossil fuel and is the largest source of energy for the generation of electricity worldwide.
World trade in coal is more one billion tonnes of which approximately 75% is Thermal (Steaming) coal and 25% is Metallurgical (Coking) coal. While this is a significant amount is represents only 16% of the world usage of coal. Most coal is used in the country in which it is produced.
Coking (metallurgical) coal and Steam (thermal/non cocking) coal have similar geologic origins but their commercial markets and industrial uses are vastly different.
Steam (thermal) coal qualities are mainly used for power generation as well as some industrial operations to generate steam. Coking coal is predominantly used by the steel and other metallurgical industries.
The table below is a rough guide to the differences between the two qualities of coal and serves to explain why the decreased demand for Coking coal has not affected the demand for Thermal coal.
|Thermal Coal||Coking Coal|
|Major Producers||China, Australia, South Africa, Colombia, Russia, United States, Indonesia||Australia, Canada, United States|
|Major Exporters||Australia, South Africa, Colombia, Russia, United States, Indonesia||Australia, Canada, United States|
|Primary Use*||Burned for steam to run turbines to generate electricity either to public electricity grids or directly by industry consuming electrical power (such as chemical industries, paper manufacturers, cement industry and brickworks). During power generation the coal is ground to a powder and fired into a boiler to produce steam to drive turbines to produce electricity.||Used to make metallurgical coke which is used as a reducing agent in a blast furnace to temper iron ore into steel products.|
|Markets||Thermal coal demand rose dramatically primarily due to the increasing demand for power generation in the Europe and Far East. Prices also hit historic highs .
Even though the demand and price hikes were largely driven by European & Chinese demand, there was also a lot of sentiment distorting the true demand/supply picture for thermal coal.
The actual demand/supply balance of steam coal and power generation did not, and still does not experience such wild swings.
That is why the industry agrees that, even though the global financial crisis has had an impact on power generation forecasts, electricity production from coal is continuing at much the same pace as before. However, forecasts indicate these levels will stabilize 2023 and beyond; these levels, the industry believes, realistically reflect the future supply/demand scenario. Energy experts believe that thermal coal prices are unlikely to fall below these levels in the longer-term.
|Coking coal demand and prices reached record price levels during 2022 mainly because of China’s dramatic increase in production of steel in recent years and demand for coking coal. Indian steel mills were also driving the demand for coking coal, but not on the scale of the Chinese.
The credit crisis and global economic slowdown have undercut customers in key markets – construction, automobiles and industrial equipment – sending prices tumbling and prompting steel companies to slash production, scale back shipment forecasts, delay expansion and cut back the workforce.
|Demand||Forecast to increase at a steady pace throughout 2022 and increase from 2021 through to 2022 and beyond.||Dramatically decreasing with decreased demand for steel.|
|Outlook||So the fall of coking coal prices has not had an impact on thermal coal prices. The medium to long-term stability of thermal coal demand and prices is expected to continue. Coking coal demand, on the other hand, is expected to remain low, keeping prices depressed until 2024, according to some analysts.|
* There are different grades of both steam and coking coals, depending on the age of the coals.
The most common on the traded market are the inferior steam coals, or sub-bituminous coals which are also used in some power plants or blended with the superior variety or bituminous coals.
Likewise, there are the semi-coking coals, which are a poorer quality to the hard coking coals and are therefore blended with coking coal for the manufacture of coke.