The global thermal coal market has faced heavy pressure in 2024, exacerbated by relatively tight seaborne supplies due to prolonged heatwaves, according to latest Resources and Energy Quarterly (REQ) issued by Australia's Department of Industry, Science and Resources on December 20.

Major Asian economies experienced sustained hot weather during summer. This, coupled with inconsistent rainfall, further intensified market volatility and dampened hydropower generation, the report said.

Nevertheless, market pressures may be alleviated gradually over the next two years given economic fundamentals. As countries worldwide continue pursuing decarbonization goals, the substantial rise in renewable energy is anticipated to erode thermal coal demand, potentially exerting downward pressure on prices in the coming years.

However, the report also noted many uncertainties. Despite record-breaking renewable surges and increased use of nuclear and gas, unexpected hikes in demand and weather-induced supply shocks have characterized the thermal coal market in 2024. This shored up coal demand and might persist in the near future.

Global imports

China China's seaborne thermal coal imports so far this year have surpassed initial projections. Earlier REQ forecasts indicated a peak import volume of 372 million tonnes for 2023.

However, heatwave-related power demand spikes contributed to a 7.9% year-on-year rise in imports over January-September. Stricter safety inspections also curbed domestic coal output in the first five months this year. While thermal coal imports are expected to decline by year-end, the full-year volume may still smash new highs.

India India's thermal coal demand stayed robust over January-August, growing 11% from a year ago. Nonetheless, imports have declined recently due to the monsoon season reducing power consumption and boosting hydroelectricity. As the peak winter demand period approaches, Indian thermal coal imports may rebound by the end of the year.

The country's imports are forecast to increase during the outlook period. Similar to China, its domestic coal output may meet about 87% of total coal needs in 2024. Yet, accelerating urbanization and electrification could outstrip domestic supplies, making India one of the few key markets projected to see growth in both coal consumption and imports over the next decade.

Thermal coal imports to Japan and South Korea fell during the first half of the year. Subsequently, persistent high temperatures following summer led to a recovery in September. By 2026, thermal coal imports in the two countries are expected to dip as they strive to expand nuclear capacities. Despite lingering public concerns post-Fukushima, these economies remain committed to increasing the share of renewable energy in their power mix.

Exports

Russia Russia's shipments to China may further decline as the U.S. expands trade sanctions against Russia. Russian thermal coal exports fell 20% year on year in the first eight months this year, dragged down by broadened sanctions and shrinking rail transport capacity. China's imports increased by 8% in the same period, but intakes from Russia dropped 20% amid multiple challenges.

Meanwhile, Russia's coal output also declined, with production in its largest coal-producing area Kuzbass down 11% year on year because of sanctions, limited rail availability, and elevated costs. Costs are projected to rise further in 2025, as Russian Railways announced plans to increase rail tariffs by 13% in 2025.

Indonesia Despite lower coal prices and logistical issues, Indonesian coal exports remained stable. Coal exports increased by 5% from a year ago over January-August, mainly directed to India. Benefiting from less rainfall, Indonesia produced 220 million tonnes of coal over July-September, the highest September quarter on record.

However, rising domestic consumption is expected to hinder Indonesian thermal coal exports during the report period. Plans to achieve energy self-sufficiency, along with the expansion of energy-intensive metal processing sectors, may attract more thermal coal output to the domestic market.

Australia Australia's thermal coal exports remained susceptible to weather disruptions. Exports grew 4% year on year in the first nine months of 2024. Protests at Newcastle port in late June-early July caused extended vessel queues, with delays lingering in August. Another protest at the same port halted shipping activities for several hours in late November.

Looking ahead, Asian economies are forecast to maintain robust thermal coal demand by the end of 2024, further backed by cold winter.

Price

Growing electricity demand boosted by extremely high temperatures, pre-winter restocking, reduced Russian coal supply, and higher gas prices all contributed to coal price rallies. As markets continue to normalize, thermal coal prices will largely stabilize in 2024. Prices for Newcastle 6,000 Kcal/kg NAR thermal coal averaged $140/t from July to September, with October and November trades settled at $140-150/t.

As 2024 draws to a close, prices are anticipated to hover high, with a diminishing likelihood of a La Nina weather episode. However, even short-lived occurrence can bring colder winters to the Northern Hemisphere and more rainfall to the Southern Hemisphere during summer, potentially increasing import demand from large markets such as China and India while reducing supply from Australia and Indonesia.

In summary, as supply tightness gradually eases, thermal coal prices are projected to trend downwards by 2026, mainly attributed to declining demand driven by expanded adoption of renewables and increased nuclear usage in Japan and South Korea.