Global coal demand reached a record high in 2022 amid the global energy crisis, rising by 4% year-on-year to 8.42 billion tonnes (Bt). The growth engine for coal demand, which increased in both power and non-power sectors, was once again Asia. In China, demand rose by 4.6%, or 200 million tonnes (Mt). In India, it increased by 9%, or 97 Mt; and in Indonesia, where nickel smelters became a significant source of demand growth, it shot up by 32%, or 49 Mt. The United States saw coal demand fall by 8%, or 37 Mt, more than any other market, while a 4.3% increase in consumption in Europe was more muted than many had feared. Despite subdued hydropower and nuclear electricity generation in some European countries, a weak economy and mild winter in Europe restrained the impact of natural gas price spikes, which encouraged some switching to coal.

In 2023 we expect coal demand to fall in almost all advanced economies. The biggest drops in consumption will occur in the European Union and the United States, where record annual declines of around 20% are expected. Other advanced economies – such as Korea, Japan, Canada and Australia – are set to see lower rates of decline. Nevertheless, the growth in China (around 5%) and India (over 8%), as well as in Indonesia, Viet Nam and the Philippines – which together represent more than 70% of global coal demand – will more than offset these decreases on a global level. In China and India, in particular, rising coal consumption is driven by robust growth in demand for electricity and low hydropower output. Overall, we expect global coal demand to grow slightly (by 1.4%) both in power and non-power sectors in 2023 to around 8.54 Bt, a new record.

We forecast that China’s coal consumption will fall in 2024 and plateau through 2026, with hydropower output set to recover while electricity generation from solar PV and wind increases significantly. However, the pace of economic growth in China and its coal use in the coming years is subject to uncertainty. The country’s economy is undergoing major structural changes as it reaches the end of infrastructure-led, energy-intensive growth, but the speed at which it changes gears and continues to expand clean energy capacity will have a significant influence on the outlook for coal. The availability of hydropower is a key variable in the short term, since coal is used as a substitute when hydro underperforms in China.

India, Indonesia and other emerging and developing economies are expected to rely on coal to power strong economic growth, despite commitments to accelerate the deployment of renewables and other low-emissions technologies. By contrast, due to their different economic and energy context, we do not see a major risk of coal use rising again among advanced economies. Coal power plants are being regularly shuttered in these economies, and industrial coal consumption is set to decline due to weak industrial output, improved efficiency, and increased switching to other fuels. Overall, we expect global coal demand to drop in 2024 and plateau through 2026, even in the absence of governments announcing and implementing stronger clean energy and climate policies. As a result, global coal consumption in 2026 is set to be 2.3% lower than in 2023 – although China will have the last word.

The dominance of China in coal markets is stronger than any other country for any other fuel. It consumes more than half of the world’s coal and produces half of it, and it is the largest importer, accounting for close to one-third of the global coal trade. But India and ASEAN also exert a growing influence – helping further shift the focus of the coal market towards Asia. In 2000, advanced economies accounted for almost half of global coal consumption (48%), while China and India together accounted for 35%. Coal consumption has declined in the European Union since the 1980s and in the United States since the 2000s, whereas it has grown strongly in China, India and ASEAN. As a result, in 2026, we expect China and India to account for more than 70% of global coal consumption. By contrast, the European Union and United States are expected to each account for around 3% of global coal consumption. This increasing gap in reliance on coal between countries could present challenges for future international dialogue on the need for rapid decline in global coal use to reach climate goals.

Energy security has moved further up the political agenda after the market disruptions sparked by the Covid-19 pandemic and Russia’s invasion of Ukraine. For China and India, domestic coal production has long been the cornerstone of energy security policy. In recent years, both countries have struggled to keep the lights on during periods of high electricity demand even before these shocks owing to coal shortages and high prices. As a result, both governments have intensified efforts to increase coal production since October 2021.

Output from the three largest producers continue to reach new highs. In China, production in both Shanxi and Inner Mongolia surpassed 1 Bt in recent years. India is also projected to cross this threshold in 2024. And in Indonesia, which has significantly boosted coal output in recent years amid elevated international prices and increasing regional demand, production is expected to reach 700 Mt in 2023 for the first time.

Meanwhile, lignite production in Europe, while still significant, will fall in line with regional demand through 2026. Hard coal production in Poland, which has committed to shut down its coal mines by 2049, is set to continue its slow but inevitable decline. Production dropped in the United States, though the decline was not as steep as the collapse in demand, given higher exports and stock building. US production is set to decline further through 2026 to below 400 Mt, which would be the lowest level in six decades.

In Australia, production is set to decline through 2026, driven by both lower domestic demand and exports.

The volume of coal trade has increased almost every year this century with very few exceptions. In 2015, China’s measures to protect its domestic coal industry, coupled with a slowing economy that weighed on consumption, led to the first contraction in coal trade since the 1990s. In 2020, the economic downturn driven by the Covid-19 pandemic triggered the second drop. Now, after a recovery in 2021 and 2022, global coal trade volumes are set to rise again in 2023, reaching record levels for seaborne and total trade – though declines are expected in the coming years.

European imports collapsed in 2023 amid low demand and plentiful stocks, while Japan, Korea and Chinese Taipei reduced their imports in line with lower coal demand. However, growth in China, which will record its highest imports ever in 2023, will more than offset these declines. Despite strong domestic production in China, exporters have benefitted from robust demand and massive stock building due to energy security concerns.

On the supply side, Indonesia once again proved to be the most flexible exporter and will export close to 500 Mt in 2023, a level that has never been reached by any country before. Australia will increase exports by 10 Mt as disruptions induced by La Niña in the past few years recede. Russia’s efforts to replace its former European energy customers continue, with about half of exports in 2023 directed to China, up from less than one-quarter in 2021.

In October 2021, thermal coal prices reached unprecedented levels when supply was insufficient to meet a sudden rise in demand after Covid restrictions were eased in many countries. After Russia’s invasion of Ukraine in 2022, high gas prices, supply-side constraints, and energy security concerns drove coal prices to all-time highs. Yet after summer 2022, lower gas prices and greater coal supply led to a pullback in coal prices.

In 2023, prices have further receded globally, although they are still higher than pre-Covid levels. Regional disparities are evident, with prices steadier in China owing to strong domestic supply, while weather disruptions jolted prices in Australia. Russian coal has traded at a variable discount, sometimes on the order of USD 200 per tonne, though more recently it has been just a few dollars per tonne cheaper. Coal producers have seen significant cost inflation in the past few years, which has stemmed from increased royalties owed to governments in some parts of the world and surging costs for fuel, explosives, tyres and labour.

Coal prices during the past two years have been much higher than expected. Consumers have struggled to cope as energy bills have jumped. Some countries intervened to provide support through regulatory measures and subsidies, especially in the electricity sector. Meanwhile, producers have enjoyed strong margins even as their costs have risen, and generous royalties have made significant contributions to the public budgets of many producer countries.

Coal mining companies have paid back debts, increased dividends and buybacks, and retained some cash. Diversified miners have often channelled coal profits towards other commodities as growing demand tied to the energy transition is expected to drive up their prices. However, Glencore, the largest thermal coal exporter, will also become a major producer of coking coal after it completes its acquisition of Elk Valley Resources, which was announced earlier this year. Given the difficulty of receiving regulatory approvals and public pushback against new projects, pure coal players are generally opting to acquire existing mines rather than develop projects from scratch.