How to Invest in Coal

What is coal and how is it used?

Coal is a fossil fuel that contains the stored energy of prehistoric vegetation. According to the World Coal Association, it dates back to 360 million years ago, and was formed when swamps and peat bogs were buried due to shifts in the Earth’s tectonic plates. Subjected to pressure and heat deep underground, the plant material in the swamps and bogs underwent a chemical reaction, creating coal.

Coal is classified at various levels of carbon content, determining the amount and quality of energy it produces. The most commonly mined classifications are sub-bituminous coal and bituminous coal. The two other types of coal investors should be aware of are lignite and anthracite.

Sub-bituminous coal is used primarily as fuel for steam-electric power generation. For the most part, bituminous coal serves the same purpose, but it can be used for heat and power applications in manufacturing too. Additionally, bituminous coal can be used in the production of coke, a key ingredient in steel fabrication.

What are the top coal producers and consumers?

As of 2022, the five top coal-producing countries were China, India, Indonesia, the US and Australia. China is by far the leader, producing 4.43 billion metric tons in 2022 compared to the next largest producer, India, at 937 million metric tons. Japan, India, China, South Korea and Taiwan are among the largest importers of coal.

The US, Russia, Australia, China and India are the countries with the largest proven coal reserves, representing 77 percent of total global coal reserves.

Does the coal industry have a future?

As mentioned, western nations are increasingly turning away from coal in favor of cleaner, more sustainable energy sources, which comes as a massive blow to the future of the global coal market.

But strong demand from China and India is likely to prolong the life of the industry. While China may have decreased its coal use in an effort to improve air quality, the Asian powerhouse is still one of the world’s fastest-growing major economies and is likely to remain the world’s top coal consumer for years to come.

As China is such a huge player in the coal market, the price of coal is tied to its domestic and foreign policies, as well as its economy. This has caused some volatility in the price of coking coal in particular.

Coal prices are expected to do well in the short term as the Russia-Ukraine war continues, and demand from China improves in the face of supply constraints. Research firm Trading Economics forecasts that coal prices will trade at US$188.27 per metric ton in Q4 2024 compared to US$167.03 in Q4 2023.

Overall, it seems that although coal use is on the decline, the fuel will still hold a place in the global energy mix for years to come. While Europe and North America turn to other energy alternatives, demand from China and India will likely keep the coal market afloat into the future.