Japan, China, India and South Korea collectively account for over half of worldwide coal imports, while Australia, Indonesia, the Russian Federation and the United States account for three quarters of worldwide coal exports. Australia alone accounts for one third of worldwide coal exports.
In the last two years Australia has largely been able compensate for the loss of the Chinese market, which accounted for 26% of total coal exports in 2019.
Increased domestic production in China and India, the transition to renewables, as well as the return of Australian coal to China, and Southeast Asian economic growth are likely to have an impact on all key coal exporters. Indonesia may benefit from proximity to growing Southeast Asian markets, while geopolitics will determine whether Australia recaptures market share lost to Russia and other markets exporting to China.
Coal Demand
In simple terms, coal falls into two categories – thermal coal (used for power generation) and metallurgical coal (used for steel production). Thermal coal accounts for about 86% of worldwide coal consumption. Thermal coal generally consists of lower grade Lignite, Sub-Bituminous as well as Bituminous coal. Metallurgical coal generally consists of higher carbon density Bituminous Coal and Anthracite.
The International Energy Administration (IEA) estimated that coal consumption reached an all-time high of 8 billion metric tonnes in 2022. About 53% of this is consumed in China and about 14% in India.
IEA expect coal demand overall to plateau through to 2024, but with large regional differences. While demand in Europe and across the Americas is expected to decline, China, India and Southeast Asia are forecast to grow.
Coal Demand vs Coal Imports
Four countries – Japan, China, India, and South Korea – account for over half of worldwide imports of coal. A further four countries – Australia, Indonesia, the Russian Federation, and the United States – account for three quarters of all coal exports worldwide measured in value and about 80% in terms of volume. Australia is the largest coal exporter worldwide with about one third of worldwide exports over the last 10 years.
Within the exporting countries, Indonesia is the single largest exporter of thermal coal, accounting for about 45% of world exports. Australia accounts for about 55% of exports of metallurgical coal.
The import share as a percentage of total coal consumption varies by country as well as by type of coal used. Worldwide about 17% of coal consumption in 2022 was met through imports. However, the largest consumers China and India meet most of their demand through domestic production. China imports about 7% of its demand, while India imports about 20%. Europe and Southeast Asia overall import about one quarter of their demand while Japan meets 100% of its requirements through imports.
Reliance on imports is much greater for metallurgical coal, which accounts for about 28% of worldwide consumption. Europe imports about 83% of its metallurgical coal, India 91%, but China only 6%.
Due to increased domestic production in China and India as well as a switch to renewables across the world, the outlook for thermal coal exports is expected to be negative. IEA expects overall thermal exports to shrink by 10% between 2022 and 2025, even though overall worldwide consumption is expected to stay flat.
Metallurgical coal exports, on the other hand, are expected to increase by 6% between 2022 and 2025. Overall worldwide consumption is expected to stay flat, but India and Southeast Asia will be drivers of growth, and China will see an increase in imports in line with a decrease of domestic production.
China Coal Imports
Over the past six years, China has imported most of its coal from Indonesia, Australia, The Russian Federation and Mongolia. Overall Chinese coal imports dropped by about 9% in 2022 after increasing 7% in 2021. Much of this drop was attributable to higher domestic production of thermal coal, which increased by around 9% while overall consumption only increased by 0.9%, according to the IEA.
Imports from Australia ceased in November/ December 2020 and no imports were recorded until October 2021. Between October 2021 and January 2022 smaller amounts were imported from Australia but trade again stopped after that. The vessel arriving in China from Australia in February 2023 represents the first substantial shipment for 12 months.
The ban on Australian imports only affected higher grades of coal. Figure 4 below shows an overview of lower grade lignite and sub-bituminous imports, for which Indonesia remained the primary source and individual country shares did not change substantially.
The import distribution for higher grade coal (bituminous, coking coal and anthracite), however, changed substantially in 2021 and 2022. Much of the gap that was left by Australian coal was either met with increased domestic production as well as imports from the Russian Federation, Mongolia, Indonesia and Canada.
Figure 6 shows the change in higher grade coal imports for the top six import countries. In 2021, Australian coal was initially substitutes with Russian, Indonesian and Canadian coal, and in 2022 by Russian, Mongolian and to a lesser extent Canadian Coal.
These are the countries that are most likely to see drops, but the biggest factor will be the extent to which China prefers to continue to source Russian coal over Australian coal now that relations between Australia and China appear to be improving.
Australia Coal Exports
Australian coal exports consist almost entirely of higher-grade bituminous coal, used both for power generation and steel production. Export tonnage declined by 3% in 2021 and around 2.6% in the first 11 months of 2022. Given that China accounted for 26% of Australian coal exports in 2019 and around 22% in 2022, this shows that other destinations – specifically Japan, Indian and Korea – have largely plugged the gap left by Chinese imports. Coal is a commodity and with multiple large import markets individual country shares can change.
In value terms, coal exports have increased substantially in line with higher prices since mid 2021. Between May 2021 and September 2022, the price of Australian coal increased from approximately US$100 per tonne to almost $470 per tonne. Since then, prices have dropped, but as of beginning of February they still stand at about $250 per tonne.
Outlook
Demand for thermal coal imports is expected to decline but this will have different impacts on each of the three major exporters Indonesia, Australia and the Russian Federation. Indonesia could benefit from increased demand in Southeast Asia and closeness to market, while Australia and the Russian Federation are likely to see demand drop. However, given that prices remain high this may not hurt export earnings.
Demand for metallurgical coal imports is overall more positive. Here geopolitics will come to play. While a number of key metallurgical coal importers – namely China – are generally positively disposed towards Russia, they may seek to focus on Australian rather than Russian coal. This could give a boost to Australian exports and push them above the 2018/2019 peak.
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