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Coal is one of the most widely used fossil fuels in the world. It’s predominantly used for electricity generation and steel production, but it’s also the at the hands of speculative investors. Coal faces increasing challenges from environmental regulations, renewable energy sources and geopolitical tensions.
When looking through the Financer.com list of investment apps, it’s clear that there is a wide range of approaches to investing among retail investors. In Taiwan, influencers have got young people hooked on ETFs. However, speculative investments on futures, such as coal, remain popular in much of Europe and North America.
For those looking at coal futures, this article will look at the factors that affect coal prices, the current trends, and the outlook for 2023.
How coal performed in 2022
In 2022, thermal coal prices increased due to tight supply, Russia’s invasion of Ukraine, and Indonesian export quotas. Australian coal saw a rise in demand as a result, and Metallurgical coal prices also rose amid supply disruptions and constrained Indonesian exports.
Despite clean energy commitments, coal use increased around much of the globe. This was mostly due to oil and gas prices soaring off the back of the war in Ukraine.
What factors will impact the coal market in 2023?
In 2023, there are more than a few factors to consider when forecasting the coal market.
Domestic production in China and India could play a key role, as higher supply can decrease the price. Currently, the two economic powerhouses are increasing production by 700M tons per year – more than the US’ total coal output.
US seaborne coal demand may drop as a result, whilst the IEA expects global coal demand to plateau at 8 billion MT through 2025. The distribution underlying this is that coal demand is predicted to decrease in advanced economies but rise in emerging Asian economies, which could level off to a plateau. So far, it’s looking like supply may rise without demand following.
There are a few reasons behind the projected plateauing use of coal. Firstly, the global economy is not in a strong state in 2023. Inflation remains high, whilst most major economies are narrowingly avoiding a recession. Furthermore, the energy mix of countries is changing, and there is a push towards green alternatives.
What investors should be looking out for
Investors should monitor the effects of sanctions on Russian energy, as these were the catalyst for a surge towards coal in 2022. Prices of electricity and gas remain high, so changes in sanctions could impact this.
Investors should also monitor climate change policies and movements too. Public opinion is turning ever more against fossil fuel usage, and many countries around the world are moving towards greener policies. However, other policies, such as China’s unofficial ban on Australian coal, should also be monitored.
Summary
In summary, coal demand and production trends in major economies, weather disruptions, green policies, and geopolitical factors will impact the coal market in 2023. In part because of India and China, global supply of coal is expected to rise, whilst demand is expected to plateau. In theory, this should lead to a decrease in coal prices over the next year or two. However, markets do not exist in isolation, and the other energy markets – which are geopolitically volatile – could change things.
