Coal market

World coal prices

Thermal coal


In 2019, the global thermal coal market have got «a perfect storm» when several negative fundamentals at once have led to the price crash without any chances for the coal market to revive. On the one hand, the first thought that crosses the mind is to draw a mere analogy between the previous collapse on the global thermal coal market that took place in 2015-2016, and the market conditions in 2019. At the same time, confluence of “input variables” in 2019 has aggravated the situation for coal-mining companies even more and again sharpen the questions as to coal future in the global energy mix. 

Atlantic basin

Price index for coal to be supplied to the North-West Europe (API2 CIF ARA, regional benchmark) following the results of 2019 lost 33% YoY having dropped from $92 / t in 2018 to $62 / t in 2019.

Downward trend emerged in the latter half of 2018 dominates the market all the year round. The market player’s hopes of a seasonal growth in demand, at least, in 4Q, have failed.


Winter season 2019-2020 was abnormally warm for the European region and for the whole Nothern hemisphere.

Long-term downward trend in the natural gas market reduced the contract prices in the first half of 2019 to the decadal minimum. From January to July the front-month contracts at major European gas hub – TTF in Netherlands – lowered from €22 / MW·h down to €9.4 / MW·h, though in the second half of the year they have partially recovered. Nevertheless, the result of the year 2019 was reduction in gas prices by 34% YoY. They announced that one of the reasons provoked “price collapse” in the European gas market was gas oversupply, including liquid natural gas (LNG), commissioning of new LNG plants in the USA, Qatar and Australia; warm winter in Europe substantial fuel stocks at storages and organization of new incoming LNG terminals for LNG receiving.

At the same time in the European Union Emissions Trading Scheme (EU ETS), which is almost 80% of the world volume trading, on the contrary, they fixed record-breaking high prices. An average ETS ЕС price for carbon in 2019 made up €24.9 / t, what is €9 higher than the price in 2018. Though the traded value finally was by 13% less that the level of 2018, the EMS marketable value has shot upwards from €130 bln. to €169 bln. The price rally in 2019 (in July the price approximated €30 / t) was principally conditioned by a supply shortage triggered by the Market Stability Reserve (MSR). In Q IV the principle moving force still remained the situation related GB, EU and Brexit withdrawal agreement.

High cost of emission permits and low prices for gas caused dramatic shift in the European energy consumption pattern: from coal to gas and RER. One of prime changes introduced into European power balance in 2019 is the fact that, for the first time ever, the gas generation indices (500.5 TW; +12% YoY.) have exceeded the coal generation indices (419.6 TW; -27% YoY). So, the coal generation share in the European power balance has dropped from 20% in 2018 to 15.3% in 2019, the gas share, on the contrary, has climbed from 15.4% to 18.2%.

Besides, the combination of all factors created favorable economic conditions for implementing the political decisions of the European countries targeted at quitting the coal generation.

Pacific basin

In Q IV of 2019 the spot price for thermal coal from Australia (NEWC, regional benchmark) firmed up at $64 / t after sharp fall (-47%) down to $60 / t in August of 2019. The regional prices for thermal coal lowered because of weak fundamentals: weaker-than-anticipated demand in Japan, South Korea and Taiwan and increased competition on the part of nuclear and renewal power generation, ecological policy on emissions reduction, exceptionally low spot prices for LNG, mild winter, and at the same time – large volume of supplies in the market. At the end of 2019 the cutdown of supplies from the USA, Columbia and RSA supported the price to some extent, whereas China and India, the largest coal importers in the region, met this challenge even better that expected. Thus, following the results of 2019 the total coal imports in these countries made up 299.7 (+6,7% YoY) and 172.92 (+9.1% YoY, this entails not only power-generating coal) correspondingly.

For the last few years the role of the European market for South-African coal miners has steadily decreased giving place to Asian buyers. In Q IV of 2019 the prices for South-African coal (API 4 FOB Richards Bay) reached the annual maximum, exceeding sometimes $90 / t. The price rally of the regional index has not been supported by fundamental factors of the coal market, but was induced by power crisis (blackouts throughout the country) that brought the country at the edge of economic recession.





Thermal coal short-term outlook

According to our estimates, an outbreak of coronavirus in China will have a time-limited impact on the country's economy. In the long term, fundamentals will go back to normal. At the same time, global commodity markets are in a fever because of irrational factors and real problems in the economy related to disruption of existing economic ties and supply chains, inability to carry out regular foreign trade activities, and logistical challenges, as entire regions of the country are sealed off due to quarantine measures.

On the contrary, the thermal coal market, which has been fading out over the past year, may use this situation as a growth point. Industry experts assess losses in China's coal extraction due to the outbreak of coronavirus in January-February 2020 in the range of 40 to 150 Mt, moreover, industrial demand for electricity may decline by 1.5% YoY, which is equivalent to 30 Mt of steam coal or about 9 Mt of LNG. Taking into account the volume of the country's total coal extraction, which was 3.776 billion tons in 2019, the possible deficit does not seem significant. Regarding the annual China’s coal import of 300 Mt or the total volume of global coal trading, slightly exceeding 1.4 billion tons, a completely different picture is emerging. If Chinese consumers enter global trading floors in search of such volumes, it may bring positive sentiment to the market and push quotations up. When the spread of coronavirus is brought under control, China has promised to intensify economic growth stimulation, which will become a driver for electricity consumption.

India also expects a reduction in coal extraction in the current fiscal year, which is going to be the first decline over the past two decades. In addition, price weakness in the region will be limited by the availability of sea cargo in the Atlantic (the USA, Colombia and South Africa are reducing their exports), and the already low profitability of Russian coal shipments to European markets.

At the same time, the European market fundamentals remain weak. The greatest concern for the coal market is the competition with gas, or rather, weak prices, and abnormally warm weather. If the weather remains the same, gas prices in summer may be even lower than a year ago. They are already testing their lowest in 11 years (since 2009), whereas February contracts are traditionally some of the most expensive ones.


Screenshot_25.pngCoking coal

In early 2019, coking coal prices were supported by strong demand for imported raw materials from Chinese consumers (after import restrictions established in November 2018 were lifted), procurement renewal by Indian metallurgists, who had lost hope for raw materials cheapening, temporary supply disruptions in Australia and the boom in global commodity markets after the disaster in Brazil.

The 2nd quarter of 2019 for the coking coal market can be described as follows: deterioration of the participants’ mood, weak demand from the main consumers, and a gradual fall in prices. The “bearish” sentiment was associated with an excess supply of coking coal, shrinkage of metallurgical margins due to high raw material prices, and a seasonal weakening of the steel market in China. In addition, the situation worsened amid stiffening of job cuts in the country in summer. Moreover, Chinese companies have practically lost interest in purchasing raw materials in Australia due to difficulties with custom duties, availability of sufficient coal reserves and concerns about a possible introduction of import quotas. In India, spot demand has deteriorated due to the monsoon season.

In the 3rd quarter, coking coal quotations tested new lows over the last months. So, for instance, in September, prices fell to their lowest ​​since the summer of 2017. The price for coking coal FOB DBCT Australia (benchmark) was below $130 per dmt (at the end of July it was just above $160 per dmt), the price for top-grade coking coal was below $140 per dmt (it was about $170 at the end of July). Current prices turned out to be worse than it was predicted in the most pessimistic forecasts, which were provided by bank analysts for the 3rd quarter specifically and for 2019 as a whole. The recession was facilitated by an increase in supply. Australian companies managed to deal with logistical challenges by summer, which led to a record rise in shipments of raw materials causing an overcrowding of the market. Furthermore, unfavorable macroeconomic conditions, including uncertainty and trade tensions between China and the United States, were behind the collapse of quotations. Moreover, costs associated with raw materials remained the main source of concern for metallurgical enterprises.


In the 4th quarter, there was a further spot price cutting for Australian coking coal. The price for hard coking coal FOB DBCT Australia (benchmark) was below $123 per dmt, the price for premium material was below $139 per dmt.

It is expected that as a result of a growth in supply and a fall in demand, the price will vary in the range of $130-170 per ton during the forecast period.

Prospects. So far, prices for coking coal, one of the components for steel production, remain stable, since in China, the restrictions on domestic supply and the violation of maritime transport availability are balanced by weak demand due to steel production cutback. Measures taken to curb the spread of the virus delayed the resumption of coking coal extraction in China after the New Year holidays, limiting its availability in the domestic market. The shipments from Mongolia are canceled, the shipments from Australia are limited by quarantine in ports and labor shortages. Logistics issues in British Columbia also affect shipments from Canadian Teck Resources enterprises. Teck, the second largest coking coal producer in the world, has lowered its supply forecast for March 2020 by 1 million tons. Moreover, market participants probably look further, considering that when the epidemic is under control, the Chinese government is likely to increase spending on stimulating the country’s economy. Once the virus is localized, it will announce support measures, and there is hope that steelmakers will benefit.


Russian coal market

Coal production in 2019 remained almost at the level of 2018 and amounted to 440.1 million tons. 332.6 million tons (+0.7% YoY) was obtained by open-cut mining, 107.5 million tons (-1.8% YoY) - by underground method. According to preliminary data, the qualitative structure of mining has not undergone any criticial changes: 341.5 million tons of thermal coal (78%) and 98.6 million tons of coking coal (22%) were produced. At the same time, regional shifts were noted: the share of Far Eastern Federal district increased from 16.9% to 17.4%; while the share of Siberian Federal district decreased from 79.6% to 79%. The main coal-mining region of the country Kuzbass lost its positions: enterprises of the region reduced coal production by 1.8% YoY - up to 250.1 million tons.

Total coal exports in 2019 amounted to 217.5 million tons, exceeding the same figure for 2018 by 3.4%. Railroad export coal shipments grew by 0.9% YoY to 208.3 million tons. The share of coal in the export railroad traffic reached 50.2%. Shipping of export coal to sea terminals grew by 8.6% YoY in 2019 - up to 155 million tons. In particular, about 15 million tons (+38.7%) were shipped to ports of the South, 54.2 million tons (+4.7%) - to ports of the North-West, 86 million tons (+7.1%) - to ports of the Far East.

Thermal coal export increased to 192.9 million tons (+4.9% YoY). Despite the negative prices conditions on the international markets, positive trends in the export of thermal coal were indicated, which may also be due to the performance of previously executed contracts. At the same time, the positive trend of thermal coal exports was also facilitated by a decrease in the tariff burden on coal companies exporting to the European market through the North-West and Azov-Black Sea seaports after Russian Railways made the relevant tariff decisions in 2019.



Exports of coking coal concentrate decreased by 7% YoY - to 24.6 million tons. First of all, it was the result of introduction of the permitting procedure for coal export to Ukraine since June 1: in 2019 the export of coking coal from Russia to Ukraine decreased almost 3 times - to 3.13 million tons against 8.93 million tons in 2018. However, most other export destinations, both Asian and European, saw an increase in shipments.

Apparent coal consumption in Russia decreased by 3.5% YoY in 2019 due to reduced demand from main consumers: thermal coal supplies to Russian energy and housing and utilities companies decreased by 4% YoY due to reduced consumption of solid fuel for power generation due to warm weather conditions and partial redistribution of power generation load from Thermal Power Plants (TPP) to Hydroelectric Power Plants (HPP); coking coal supplies to Russian coking plants decreased by 1.4% YoY due to the reduction in iron output there was a decrease in metallurgical coke output.

Due to problems in the coal industry both inside and outside the country, a decrease in production indicators and a significant deterioration of financial performance of coal mining companies are expected in 2020, including an increase in the number of bankruptcies of small companies, transactions with coal assets. Above all, it will affect those companies that specialize in thermal coal mining. There is likely to be a significant decrease in investment activities, freezing of current and planned expansion projects. The main players will focus on measures to reduce production costs and maintain profitability of supplies. Possibilities to increase export shipments of coal will be limited in 2020 both by internal factors: lack of capacity of the Eastern polygon for the Asian direction, the permitting procedure for exporting Russian coal to Ukraine, indexation of Russian Railways' tariffs, the issue of extension of railroad discounts that were in force in the second half of 2019 for the European direction is open; and by external factors: Poland's political refusal to export Russian coal, trade and logistics restrictions in China as a result of coronavirus outbreak.