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 2021, the five top coal-producing countries were China, India, Indonesia, the US and Australia. China is by far the leader, producing 3.942 billion tonnes in 2021 compared to the next largest producer, India, at 766.9 million tonnes. India, Japan, 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 75 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.

Together, China and India account for 65 percent of global coal demand. Coal consumption from Japan, Korea, Taiwan and Southeast Asia represents another 10 percent.

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 global economy recovers post-COVID-19 and as the Russia-Ukraine war continues. Research firm FocusEconomics forecasts that Pacific basin benchmark coal prices will average US$240 per metric ton in 2022 and US$140.20 in 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.