Coal Demand

Coal demand is dominated by two countries: China and the US.

China’s coal industry has had a serious oversupply problem in recent years, particularly in the late 1990s, and the government has begun implementing major reforms aimed at reducing the oversupply, returning large state-owned mines to profitability as a prelude to possible future privatisation, and reducing mine accidents. Large state-owned coal mines had experienced build ups of unused inventories in the mid to late 1990s, and many were operating at a financial loss. A large number of small, unlicensed mines also have added to the oversupply. In 1998, the government launched a large-scale effort to close these down but it has become clear, through much anecdotal evidence, that not all of the ’closed’ mines have actually ceased operation.

In the last 40-50 years the global coal market has changed radically. In 1965, the US was overwhelmingly the largest producer and consumer of coal, accounting for 20% of consumption. This share has increased slightly to 22% in 2003 but the US has moved from first place into second place after China. In 1965 China had an 11% share of the global market but this has grown to 45% of consumption and 45.6% of production in 2009.

China now occupies the dominant position in the world market, driving prices of both coal and freight. Initally it was thought that its future share will not increase at the same rate as in the five years from 2000 to 2005, indicated by the slow down in 2006 and statement from government sources in 2006. However, based on growth in 2009, this is unlikely to be the case. Although it will not catch up with Chinese consumption, India is likely to be the main growth country, followed possibly by Russia, which is prioritising coal for domestic consumption to conserve oil and gas for foreign export earnings.