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Steam coal purchases by a group of smaller Asian importers — Malaysia, Pakistan, Philippines, Thailand and Vietnam — seem to have fallen slightly in the past twelve months to around 125mt, after a large decline in the preceding year. Previously this group had become a more prominent trade segment amid rising power station capacity and continued electricity demand growth.

Seaborne imports into European countries last year expanded rapidly. The European Union and United Kingdom recorded growth of an estimated 26mt or 29%, to 116mt, an unexpectedly large change. Most of the growth was steam coal, caused mostly by the reduction in pipeline natural gas movements from Russia and the ensuing severe shortage of energy supplies.

Numerous changes among coal suppliers, as well as among importers, affected the geographical pattern of global coal trade. Final 2022 figures are awaited but some annual changes are already visible. In the coking coal segment, Australia’s dominant exports decreased. Changes among steam coal exporters saw a strong increase in Indonesia’s volume accompanied by offsetting decreases elsewhere, including in Australia, Russia and Colombia.

PROLONGING SOLID IMPORT DEMAND?

After the continued support for global coal trade emerging last year, how likely is an extended solid period in 2023? Some signs can be interpreted as pointing to another broadly flat year or possibly modest growth. Strong annual expansion seems unlikely given the headwinds faced by the coal market.

One specific feature applicable to several major importing countries is that prospects in the immediate future are especially difficult to assess, and the next annual change in purchases may be up or down, or perhaps volumes will remain unchanged. The outlook for some countries’ coal markets and domestic production (where relevant) is unclear, sometimes because political influences are unpredictable, emphasizing the nature of the puzzle.

An additional influence emerging at the beginning of last year was the sudden tightening of global energy supplies, with a particularly large impact in Europe. The war in Ukraine exacerbated an energy market trend already under way, enough to renew a focus on coal as an alternative energy source which could assist in relieving pressure. While most of the impact of this revision of coal’s contribution may be seen as temporary, the temporary phase may persist for some time.

But longer-term negative impulses pervade the international coal market and maintain ongoing downwards pressure. These influences hold back potential for coal trade to strengthen, probably also preventing brisk growth in 2023. National policies on energy supplies, within which the broad strategy is visible but the timing and extent of specific measures is often less clear, are likely to adversely affect coal use and movements. The global impact of policy trends is set to drive a decline in coal trade over the decade ahead.

Measures introduced with the intention of benefiting the environment have prioritized switching away from coal-fired power generation, towards cleaner natural gas or the often preferred choice of renewable energy supplies. In Europe in particular the emphasis has severely diminished coal-fired power plant capacity and electricity generation and decimated the coal market.

Looking at individual countries, one notable uncertainty about future global trade drivers is coal import demand in China. Estimates of annual volumes are largely conjectural. While buying on international markets reflects commercial factors, short-term government policy decisions and controls often intrude, complicating analysis and intensifying doubts. General indications about these policies are known, or may be envisaged, but the timing and magnitude of effects on coal imports are much less obvious. Shortterm trade flows may change rapidly.

Predictions for world seaborne coal trade in 2023 consequently are based partly on speculation and guesses, albeit informed by perceptions about underlying trends. Although current signs tend to point to maintained or slightly stronger import demand in a number of countries during the next twelve months, it is not completely clear whether such rises will be sufficient to more than offset adverse pressures.

Accentuating The Positive

Contributing to a range of positive views of the outlook for coal trade this year, an analysis already referred to was published several weeks ago by the Australian Government’s Industry Department. According to the calculations, world trade in steam and coking coal could total 1,372mt in 2023, a 25mt or 2% increase from last year’s estimated 1,347mt volume. The figures include some land movements but are mostly seaborne. Steam coal trade this year is expected to increase by about 1%, while coking coal trade advances more briskly by 4%.

Among the main importers expectations vary widely. Optimism is greatest for India, which is expected to see 21% growth to 281mt in 2023, amid steam coal imports expansion of almost a third, more than offsetting a slight weakening of the coking coal volume. By contrast China’s purchases are expected to continue on a downwards trend, decreasing by 7% this year to 282mt, mainly caused by lower steam coal requirements. These countries together comprise two fifths of the world total.

Further growth in India’s import demand at the pace predicted is a crucial part of this forecast indicating global trade growth. The positive view of India’s purchases in the twelve months ahead is based on an expected increase in coal use, exceeding growth in domestic coal production and available supplies. Although a policy of reducing dependence on foreign supplies by boosting output from domestic mines has been reconfirmed recently and some progress towards this target has been achieved, it is not proving a rapid transition.

The forecast does not contain a specific estimate for Europe’s entire coal imports. But coking coal is estimated, at a flat 36mt this year. AGDISER analysts suggest that “coal supply from Russia to Western Europe is unlikely to ever recover”. Following the ending of Russia’s role as a top supplier, a greater proportion of European imports is now long-haul shipments from other exporters around the world.

This forecast of world coal trade also suggests, perhaps tentatively, that the volume in 2024 could be maintained at the current year’s 1372mt level. Some other analysts have expressed similar expectations, albeit emphasizing uncertainties and to some extent the greater unpredictability of longer term forecasts which are more speculative. However such projections support a view of a plateau being extended.

Overshadowed By Imponderables

Whether coal trade continues to hold up or grow in 2023 will reflect several prominent influences. The pace and composition of global economic activity and its consequences for energy demand will be significant. Also, coal’s competitiveness with alternative energy supplies, and the extent of pressure from decarbonization policies are likely to be instrumental. Moreover, consequences flowing from the war in Ukraine specifically are another imponderable.

Evaluation of these factors may suggest that the present trend in world seaborne coal trade will be difficult to sustain. Yet there seems to be potential for positive developments during 2023 which could be enough to raise the total by 1–2%. It still seems unlikely that the peak volume seen four years ago in 2019 (6% above the current level) will be regained either this year or later.

A more restrained rate of economic growth in a number of coal-importing countries, as envisaged by the IMF and other forecasters, may alleviate pressure on energy demand during 2023. But energy supplies probably will remain tight and, within this broad trend, coal demand could remain well supported.

Extending a positive outlook to envisage a continued upwards coal trade trend is not supported by much evidence. Potential for expansion is clearly limited. Even if a solid trend persists into next year, the longer term prospects are surrounded by negative pressures. While signs of an imminent collapse in coal demand are absent, the impact of intensifying emphasis on decarbonization around the world is conspicuous.

A report published at the end of last year by the International Energy Agency suggested that two fundamental developments will shape global coal trade through 2025: “first, countries, particularly in Europe, will adapt to and overcome the current energy crisis and return to their coal phase-out paths. Second, continued efforts to secure energy supplies by China and India lead to higher domestic output and lower imports”. In the IEA’s view this expectation could result in steam coal trade declining sharply by about 10% by 2025, partly offset by continued growth of about 6% in coking coal trade.

Underlying these comments is an acknowledgement that the impact of the ‘normal’ economic and commercial drivers of coal use and imports will be modified by the effects of environmental policies adopted by governments, and of the attitudes and actions of businesses and consumers. The outcome of this pattern is visible as an influence restricting and probably ultimately reducing coal trade. DCi