Coal markets have been shaken severely in 2022, with traditional trade flows disrupted, prices soaring and demand set to grow by 1.2%, reaching an all-time high and surpassing 8 billion tonnes for the first time. In last year’s annual market report, Coal 2021, we said that global coal demand might well reach a new peak in 2022 or 2023 before plateauing thereafter. Despite the global energy crisis, our overall outlook remains unchanged this year, as various factors are offsetting each other. Russia’s invasion of Ukraine has sharply altered the dynamics of coal trade, price levels, and supply and demand patterns in 2022.

Fossil fuel prices have risen substantially in 2022, with natural gas showing the sharpest increase. This has prompted a wave of fuel switching away from gas, pushing up demand for more price-competitive options, including coal in some regions. Nonetheless, higher coal prices, strong deployment of renewables and energy efficiency, and weakening global economic growth are tempering the increase in overall coal demand this year. In China, which accounts for 53% of global coal consumption, prolonged and stringent Covid-19 lockdowns have weighed heavily on economic activity, undermining coal demand. At the same time, droughts and heat waves in China this summer accelerated coal burning to meet a surge in power demand for air conditioning.

Coal used in electricity generation, the largest consuming sector, is expected to grow by just over 2% in 2022. By contrast, coal consumption in industry is expected to decline by over 1%, mainly driven by falling iron and steel production amid the economic crisis.

Europe – and the European Union in particular – has been one of the regions hardest hit by the energy crisis, given its reliance on Russian pipeline supplies of natural gas. Lower hydro and nuclear power output due to weather conditions, combined with technical problems in French nuclear power plants, put additional strains on the European electricity system. In response, some European countries have increased their use of coal power generation while also accelerating the deployment of renewables and, in some cases, extending the lifetimes of nuclear plants.

Under the threat of gas shortages and potential issues ensuring sufficient power system adequacy, some coal plants that had closed down or been left in reserve have re-entered the market. In most countries, this involved a limited amount of coal power capacity. Only in Germany, with 10 gigawatts (GW), is the reversal at a significant scale. This has increased coal power generation in the European Union, which is expected to remain at these higher levels for some time. But redoubled efforts to improve energy efficiency and expand renewables will see EU coal generation and demand return to a downward trajectory as soon as 2024 in our forecast.

China and India, the world’s largest coal consumers, are also the biggest producers and, in addition, the top two coal importers. In response to price rises and supply shortages, China and, to a lesser extent, India, pushed up domestic coal production after summer 2021. In March 2022, Chinese production reached a new monthly high and it is set to rise to a new annual record, with expected growth of 8% for the full year, reducing the need for imports and replenishing stocks. In India, the government has tried to increase production for a long time to reduce imports. In 2021, coal production reached 800 million tonnes for the first time. In our forecast, India’s production surpasses 1 billion tonnes by 2025. Indonesia, the world’s third-largest producer, is also expected to expand production to reach a new high in 2022, with exports playing a more important role than domestic demand. With minor growth in the United States and even in Europe, global coal production will rise above 8 billion tonnes in 2022, its highest level ever.

Supply and demand imbalances combined with high gas prices pushed thermal coal prices to unprecedented highs in October 2021. Almost immediately, China and India accelerated production in order to ease the market, and prices soon fell back to lower levels. When Indonesia banned exports in January 2022, international prices rose again while Chinese prices remained more stable, as the local market was well supplied. Russia’s invasion of Ukraine in late February, however, sparked a surge in gas prices, which in turn pushed coal prices up to new records in March and during the summer. Further support for prices came from a war premium and an increasing perception of a risk of physical energy shortages. Prices have moderated since the summer as supply worries have eased. Rains in Australia further exacerbated market tightness during the year, exceptionally pushing prices for high-quality thermal coal above those for high-value coking coal. With the EU ban on Russian coal phased in from April to early August, prices for Russian coal have been sharply discounted.