Report extract

Supply

Worldwide coal production in 2019 increased by 1.5% to 7 953 Mt, compared with a decline in coal demand, and therefore, coal stockpiles expanded. Thermal coal and lignite made up around 86% of this production and the remainder was metallurgical coal. China – the world’s largest coal producer – accounted for about 46% of global coal production in 2019. The increase in coal production was driven mostly by countries in the Asia Pacific region (73% of global production), particularly China, India and Australia, while production in the United States and European Union declined.

Estimates indicate that global coal production will slump 6.5% in 2020, primarily in response to falling demand. Coal production destined for domestic consumption largely depends on the extent to which respective consumers of the produced coal are affected. Export-oriented production is influenced by costs, quality and location in a market influenced by the pandemic and shifting landscapes in power generation. Coal demand in the United States and European Union is declining drastically, and both are major markets for US coal. Therefore, US coal production is projected to decline severely (-23%) for 2020. Other regions where coal production is expected to fall strongly are Indonesia (-14%) and the European Union (-21%). Underpinned by stable domestic demand, coal production in China will be flat in 2020, with post-Covid uptick offsetting production cuts in the first-quarter.

Coal production is expected to increase to 7 575 Mt in 2021 in line with an increase in demand. 

Global coal production annual changes by region, 2018-2021

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Global coal production, 2018-2021

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Coal production in China experienced big declines in the 2014-16 period (down almost 500 Mt from 2013). Since then, output has picked up. While still below the 2013 level, coal production in 2019 was 3 693 Mt, up 4.1% from the 2018 level. Thermal coal accounted for 83% of production and the balance was metallurgical coal1.

Coal output in China for 2020 is expected to be similar to 2019 levels at 3 690 Mt. Despite a 30% investment increase in coal mining and washing in 2019, the outbreak of the corona virus disrupted coal production during the first months of 2020, declining around 5% in January and February. Workers were not able to return to the coal mines as the New Year holidays were prolonged due to the Covid-19 and lockdowns were imposed. In mid-February only 57% of coal mines were operational. By the beginning of March this increased to 83%, indicating a swift recovery of coal production. The economy’s rebound from the second-quarter and the accompanying recovery of domestic coal demand underpinned coal production. The government tightened import restrictions for the second-half of 2020, which are expected to provide additional protection for domestic coal producers. Therefore, overall coal production in China is expected to remain at similar levels in 2020 as in 2019. In the first three-quarters of 2020, coal production decreased 11% in Inner Mongolia, while it increased in Shanxi (+5%), Shaanxi (+10%) and Xinjiang (+12%).

Based on the expected recovery of coal production in 2020, mine approvals and investment pace, it is projected that coal production in 2021 will be similar to 2020 levels.

Year-on-year change in coal production by region in China, Jan to Sep 2019-2020

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China’s 13th Five-Year Plan (FYP) (2016-2020) for economic and social development features supply-side reform of the coal sector. Reform objectives aim to increase coal’s competitiveness, profitability and safety via a number of policy goals and actions. These reforms will continue in the coming years. One objective is to consolidate mines and companies to rationalise state-owned enterprises by introducing private capital, reducing overcapacity and restructuring assets.

Consolidation efforts are underway. In July 2020, the Shandong government announced the merger of Shandong Energy Group and Yankuang Group to create one of the largest coal producers, accounting for around 8% of China’s total production (more than 291 million tonnes per annum [Mtpa] of production capacity). In October 2020, Shanxi province launched the Jinneng Holding Group, which has absorbed most state-owned mines (583 Mtpa capacity, of which more than 100 Mtpa is coking coal) to become one of the three-largest coal producers in the world (with Coal India Ltd and China Energy Investment Corporation). The consolidation of companies and mines is likely to continue.

As part of the supply-side reforms, the first National Coal Trading Centre opened in Beijing in October 2020 after more than two years of preparations. Shareholders of the Trading Centre represent 45% of coal production, 55% of coal consumption and 75% of coal transportation.

Another target is to improve performance by replacing unsafe, high cost mines with safer, lower cost ones. About 895 Mtpa of coal mine capacity was closed in the 2016-19 period, reaching the target of the 13th FYP two years early. The number of mines halved from around 10 800 in 2015 to about 5 300 by the end of 2019. Small mines continue to be closed to reach the central government target of no more than 5 000 mines. New modern and large-scale opencast and underground mines are being approved, especially in the main coal mining regions of Inner Mongolia, Shaanxi, Shanxi and Xinjiang, where mines representing 190 Mtpa of capacity were approved in 2019. This trend continues. Ordos, a major coal hub in Inner Mongolia plans to fast-track approvals for 18 new mines with a combined capacity of 129 Mtpa in 2020. Xinjiang, a region accounting for around 40% of China’s coal resources, although only 6% of production approved ten coal mine projects with a cumulative capacity of 16 Mtpa in the first-half of 2020. New mines started operations in 2018 with capacity of 190 Mtpa and in 2019 of 100 Mtpa. In the first-half of 2020, new mines with cumulative capacity of 80 Mtpa started operations in China.

The three major coal mining regions of Inner Mongolia, Shanxi and Shaanxi provided around 70% of China’s coal output in 2019. Counting in the other coal mining regions of Xinjiang, Guizhou, Anhui, Shandong and Henan, the share is about 89%. Production of large and medium-size mines in the three main regions have expanded, while output of smaller mines in the rest of China has declined, reflecting the consolidation of production in larger mines and shifting production to the north and northwest as part of the supply-side reforms.

Annual capacity of approved new mining projects in China’s major coal producing regions, 2018 and 2019

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Year-on-year change in coal production in China’s major coal producing regions by mine size, 2018-2019

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India is the second-largest coal producer in the world. Output in 2019 of 783 Mt was down slightly (-0.9%) from 2018 levels – the first drop in coal production since 1998. Coal India Ltd. (CIL), the state-owned and largest producer, curtailed production amid a strong monsoon season that disrupted mining operations and a decline in domestic coal demand.

Coal production in India in 2020 is estimated at about 743 Mt, a decline of around 5% from the previous year, though stockpiles are increasing. To increase the offtake of domestic coal, the national government mandated CIL to replace at least 100 Mt of imports by domestic coal in the 2020-21 fiscal year.

Coal production is expected to increase in 2021 in line with government targets for domestic demand. However, the projected rise in coal production of 3.7% is insufficient to match 2019 production levels.

CIL, the world’s largest coal mining company, accounted for about 80% of India’s total coal production in 2019. CIL operates 364 mines of which 166 are underground, 180 opencast and 18 mixed mines. Due to higher productivity, more than 90% of production is opencast. One new mining project was completed by CIL in 2019 and 11 projects were approved. CIL has increased coal production by more than 30% over 2014-19 and is the government’s main tool to boost domestic production to address supply shortages and to curb import dependency.

The forecast is for coal demand to rise in coming years and India aims to further boost domestic production. The production target for CIL of 1 Bt by fiscal year 2023-24 is maintained.

One approach CIL is taking to achieve the target is to increase production via “mine developer operators” (MDOs), which are contractors that carry out the mining works for CIL. MDOs have been key for ramping up output in recent years, as 13 of the 14 operational coal mines allotted to public sector undertakings between 2015 and 2020 are run by MDOs. CIL plans 15 mines that will be operated by MDOs and have combined capacity of 168 Mtpa of which 12 are opencast and 3 are underground mines. Procedures for tendering and contracting of the MDOs are planned to be completed in 2021-22.

CIL is also planning to restart production at 12 shut-in underground mines in the eastern states of West Bengal and Jharkhand, with mineable reserves of just over 1 000 Mt of coking coal and high grades of thermal coal. Operations at these mines were discontinued 15-20 years ago due to poor economic performance, but the economic viability has improved with advances in mining technology.

In September 2020 CIL acknowledged that 54 projects are delayed of the 123 that it is pursuing. Reasons include delays in obtaining clearance and possession of land as well as issues related to rehabilitation and resettlement.

Singareni Collieries Company Limited (SCCL) is the main producer of coal in India’s southern region. In 2019 it accounted for around 9% of total coal production in India. SCCL operates 18 opencast and 27 underground mines. The company increased production by 22% over the 2014-19 period. SCCL aims to ramp up production to 85 Mt in the next five years.

In April 2020, NLC Ltd, a state-owned lignite producer, started operations at the Talabira Opencast Mine, with a production target of 20 Mtpa. This is a milestone for NLC, as it is its first coal operation in Odisha, an eastern Indian state.

Share of coal production by company in India, 2019

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Monthly coal production in India, 2018-2020

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A keystone to India’s plans to boost domestic coal production is to allow commercial mining, which breaks a four decade monopoly for CIL. An important driver is to reduce coal imports. Contributing factors are to boost revenues for states with coal resources, strengthen employment opportunities, improve economic and social conditions and develop coal gasification for application in transport, and in steel and fertiliser production, while guaranteeing environmental protection.

The final rules guiding the process to allow wider participation in coal mining were finalised in 2020, fleshing out the 2015 special provision that provided for the opening. The prohibitions on 100% foreign direct investment and a requirement of previous coal mining experience were eliminated for the auction process. As the mines are awarded on a revenue-sharing basis, a National Coal Index was rolled out to prevent under-reporting of revenue.

The auction process required both technical and financial assessments and the latter one consisted of two stages of initial and final price offers. Initially, 41 coal mining blocks were identified but 38 blocks were released for auction in September 2020. Fifteen blocks received no bids and four blocks received only one bid, all of which were excluded from the second stage. In November, 19 blocks containing 3.15 Bt of coal resources and annual mining capacity of around 50 Mtpa were allocated to 15 companies, all of them from India.

Of the successful bidders, there are coal producers in captive blocks, coal producers as MDOs, coal consumers and companies without previous coal mining experience. Coal quality is middle-grade thermal coal (calorific values 3 400 - 5 500 kcal/kg) with only 150 kt of coking coal suitable for making steel. The blocks are in the states of Odisha, Jharkhand, Chhattisgarh, Madhya Pradesh and Maharashtra. The government estimates that these commercial mining operations will generate USD 950 million of revenue for the states and create 69 000 jobs.

Opposition to the opening of commercial mining has been ongoing. Mining unions have opposed the policy since it was first announced and they organised a three-day strike at CIL in July 2020. The state of Jharkhand, where a quarter of the auctioned mines are located, filed a lawsuit in July 2020, concerning environmental impacts and displacement of tribal communities.

Whereas it is not clear yet how much output will be produced by private coal mine operators, this is the deepest reform of India’s coal sector since the monopoly of CIL was established in the 1970s. Commercial mining is an important step, together with captive producers and e-auctions, to provide flexibility and revitalise a market where long-term fuel supply agreements with CIL dominate. Although no foreign company bid in the first auction, this does not preclude the possibility that foreign companies may participate in coal mining in India through partnerships with domestic companies or in future auctions.

Mining capacity of blocks offered and allocated by state, India

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Coal production in Australia in 2019 was 550 Mt, a 3.4% increase from the previous year. Thermal coal accounted for 54%, metallurgical (met) coal for 38% and 8% was lignite.

A considerable drop of about 9% is estimated for 2020. In the first-half of 2020 thermal coal production in Australia was sustained by high demand from China. However, exports to China declined in the second-half of the year as import quotas tightened and customs clearance of Australian origin coal became more difficult. Thermal coal production in Australia is supported by the resilience of its exports, partially due to its cost structure and take-or-pay contracts. Australian production of met coal is estimated to decline by 9%, despite a strong demand from China in the first-half of 2020. Australia became the largest exporter of coking coal to China in the first-half of 2020, as Chinese steel production increased and Mongolian exports to China were hampered by pandemic restrictions. Australian exports to China are declining in the second-half of the year, but the recovery of steel production in India is pushing up demand for Australian coking coal.

Low demand stimulated temporary mine closures in the second-half of 2020: Peabody closed its Wambo mine in New South Wales for two months from July; and Glencore closed most of its mines for three weeks in September and October. Whitehaven Coal downgraded its sales targets for fiscal year 2020 and deferred its final investment decision for the Vickery project in New South Wales until 2021.

Metallurgical coal production in Australia is expected to rebound strongly in 2021 (+8%) as demand from steel manufacturers recovers. Australia is expected to maintain its dominant position in the met coal market. The announcement of La Niña in progress in 2020 urges caution, as it could disrupt Australian supplies, should extreme weather events occur.

For thermal coal a weaker recovery is expected (+1.0%) in 2021, as any rise in demand is expected to take place in an environment of intense competition between suppliers. Overall, coal production is expected to increase by 3.7%.

Coal production in Indonesia in 2019 increased by more than 12% to a record level of 616 Mt, almost all of which was thermal coal. This volume exceeded the target of 480 Mt set by the government at the beginning of the year. Encouraged by high prices in 2018, many new companies started operations, resulting in a spike in production. As a result, domestic coal prices fell some 28%, which put pressure on state revenues. In response, the national government required mining companies to cut production in 2020 and issued a production target of 550 Mt. Additionally the government continued the policy of Domestic Market Obligations (DMO), which requires coal producers to deliver 25% of output to the domestic market. In August 2020, the Indonesian Coal Mining Association asked the government to temporarily halt the DMO requirements, as weak domestic demand made it difficult for mining companies to fulfil the obligations.

Coal production in Indonesia is estimated to decline by 14% to 529 Mt in 2020 as the Covid pandemic affects both domestic demand and exports. In the main import markets of Indonesia’s lower calorific coal, import quotas in China and lower demand compounded by high stockpiles in India put pressure on producers. The Indonesian Coal Mining Association urged miners in July to reduce their output. As Indonesian coal export prices declined drastically, many miners decided to cut production. This included major companies such as PT Adaro Energy, PT Bayan Resources, Indo Tambangraya Megah and PT Bukit Asam.

A law that relaxed environmental regulations was passed in June 2020. It eases restrictions on mining operations and allows automatic permit extensions up to 20 years. Proponents praise the positive effect on the coal mining industry through reduced uncertainty, while opponents are concerned about environmental damage and deforestation.

Coal production in Indonesia is estimated to reach 545 Mt in 2021, up 3% from the previous year reflecting increased domestic and export demand. In August 2020 Indonesia’s energy and mineral resources ministry issued a target of 609 Mt of coal production for 2021, updated at a more realistic 550 Mt in December 2020.


Annual changes in coal production in Australia and Indonesia, 2019-2021

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US coal production fell by 7% in 2019 to 640 Mt, the lowest level since the 110-day miner’s strike in 1978. The decline in US coal production in 2019 continued a ten-year trend since the peak of production in 2008. Driven by the collapse in domestic coal use for power generation and lower demand in the leading export destination, Europe, coal production in the United States fell by around 40% between 2008 and 2019. As demand slumped, the number of US coal mines decreased by more than half between 2008 and 2019. This triggered bankruptcies of many coal mine operators throughout the 2010s.

In 2020 production is estimated to decline even more drastically, by one-quarter to 491 Mt. This level of production has not been seen since the 1960s. In addition to the challenging market conditions for coal in power generation vis-à-vis low natural gas prices and expansion of renewable generation assets, the decline in industrial activity and in particular, power demand, as a result of the Covid-19 pandemic, is also depressing coal production.

In 2021, production is expected to recover to 539 Mt, stimulated by a rebound in domestic demand.

Market forces that have burdened the US coal industry in recent years particularly affect thermal coal producers. Peabody Energy and Arch Resources (formerly Arch Coal), the two largest US producers, are trying to build a joint venture to manage thermal coal assets to face the collapse of US coal demand. Yet, metallurgical coal production, which not affected by the shale revolution is becoming more relevant for the US coal industry. For example, Arch Resources declared that it intends to focus on the production of met coal instead of thermal coal.

US coal production by region, 2008-2021

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Coal production in the Eurasia region in 2019 was 569 Mt, less than a 1% decline from the previous year. The largest coal producer in the region was Russia, where production remained stable at 430 Mt. The second-largest producer in the region was Kazakhstan (105 Mt), followed by Ukraine (26 Mt).

In 2020, coal production in Russia is expected to decrease by about 8% due to reduced domestic demand, especially in power generation, and lower demand in the main thermal coal export markets, i.e. Europe and Korea. Conversely, production in Kazakhstan is expected to increase slightly in 2020, despite the Covid pandemic and economic slowdown.

In 2021, Russia’s coal production is expected to remain close to 2020 levels. Production in Kazakhstan is expected to increase by 1.5%. Supply from the other coal producing countries in Eurasia is expected to remain stable.

Kazakhstan, which ranks eighth in worldwide coal reserves, aims to further develop its coal mining sector as it is one of the most important resource industries in the country. The Roadmap for the Development of the Coal Industry of Kazakhstan for 2019-2021 was established. High transportation costs, due to long distances between production sites and consumers as well as relatively low quality, render Kazakhstan’s coal relatively expensive for consumers and reduce its competitiveness even in the Russian market. One of the priorities of the roadmap is to promote the production of processed products from coal to gain higher added value. Another focus is to expand exports, as its production volumes already satisfy domestic demand. In 2019 Kazakhstan exported 25 Mt of coal to Russia, Kyrgyzstan, Uzbekistan, Belarus and Ukraine. 

Eurasian coal production annual changes by country, 2019-2021

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Eurasian coal production, 2019-2021

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In 2019, coal production in the European Union decreased by 15% to 373 Mt from the previous year. This decline is mainly attributed to the decrease in production in Germany (-22%) and Poland (-8%).

Developments in the European Union have been exacerbated in 2020 by the effects of the Covid-19 crisis. Estimates are that EU coal production will decline by 21%, driven by developments in Germany (-23%) and Poland (-14%). Even the economic recovery in 2021 is not expected to be able to reverse the trend. Only a minor increase of 4.0% is expected.

In Germany, the last hard coal mine, the Prosper Haniel in Bottrop, closed in December 2018. Hard coal production, has been in decline for decades. By contrast, in 2019, 131 Mt of lignite were produced, mostly for domestic electricity and heat generation. In January 2020, Germany’s national government and the states reached an accord on to phase out lignite production by 2038. The quantities of lignite to be produced over the phase-out period will be shaped by the market environment for lignite-fired power generation. The Czech Republic is considering a similar plan.

In Poland, coal production in 2019 was comprised of lignite (50 Mt) for power generation, and thermal coal (50 Mt) for use in power generation, and the industrial and residential sectors, as well as coking coal (12 Mt). The decline in Poland’s coal production in 2019 was driven by deteriorating market conditions for domestic coal and shrinking coal-fired power generation. The costs of domestic coal production have risen in recent years and are reflected in domestic coal prices. Imports of cheaper coals, especially from Russia, continue to put pressure on domestic production. With coal demand declining and stockpiles building in 2020 the Polish government halted coal imports by state-owned power producers. Yet a further decline in coal production is expected in 2020.

In September 2020 the Polish government and trade unions reached an agreement to halt operations of two thermal coal mines of state-owned Polska Grupa Gornicza (PGG) and to close all of PGG’s coal mines by 2049. This marks the first coal phase-out plan declared in Poland. In case that this decision impacts on investment in mining, decline in coal production could accelerate.

Coal production in the European Union by country, 2018-2021

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South Africa accounts for more than 90% of coal production on the African continent. Its coal production in 2019 was robust, declining by less than 1% from the previous year. As in all major exporting countries, South African coal production was hit by the effects of the pandemic. Coal mines were excluded from lockdown measures as they are considered essential for power generation. Nevertheless production is expected to decline by around 7% in 2020, less than in Australia or Indonesia, as South African production is supported by relatively stable export volumes, despite the weakness of international markets. Lower production volumes are attributable to the decline in domestic demand, especially in power generation. Lower sales and prices have hit small and mid-size producers in particular, which are financially struggling. Big producers like Exxaro or Glencore could manage the downturn better. Coal production in South Africa is expected to recover only slightly by 1.5% in 2021.

Outside South Africa there are some developments in other African countries that, while small at global level, are relevant. In Zimbabwe, the Lubu project, which planned to start operations in 2020 to become the fourth coal producer in the country, delayed its schedule due to the Covid-19 crisis. This could increase Zimbabwe’s coking coal production by 0.5 Mt, although it will probably be delayed beyond 2021. If the coal power projects announced go ahead, this will require over 20 Mtpa of coal supply only for these projects.

In Botswana, Minergy started operations in July 2019, to become the second operator in the country. Minergy has a production target of 1 Mtpa with output destined for domestic, South African and Namibian markets.

In Tanzania, if the Mbeya coal-fired power plant is built, the mine will produce 1 Mt in the 2025 planning horizon.

Coal production in Colombia declined in 2018 and further contracted by 2.6% to 82 Mt in 2019. Most of its production is thermal coal (94%). Almost all (87%) of Colombian coal production is exported. Changes in the seaborne thermal coal market underpin Colombia’s reduced coal production in 2019.

Production in Colombia is expected to decrease dramatically in 2020, by over a quarter. Low prices, plummeting demand in the Atlantic Basin and interruptions due to measures to halt the spread of Covid-19 as well as industrial action in El Cerrejón, the country’s largest coal mine, contribute to the decline. These labour and social crises have coincided with a progressive reduction in international demand for coal and a loss of markets for Colombia. Prodeco and CNR halted mining operations in 2020. Moreover, Prodeco applied for a four-year suspension, though mining authorities have not authorised the request to stop production. Since the decline in demand in key markets and the competitive situation is not expected to ease in 2021, a rebound in production is unlikely.

In Chile, coal production halted in 2019 after the supreme court banned the use of explosives at Mina Invierno, the only producer in the country.

References
  1. Coal production in China includes anthracite and lignite, but available data do not report those categories separately.

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