The future of coal in the global energy sector

Global thermal coal market will decline, led by China 

The seaborne thermal coal market begins its permanent decline before 2030, with a fall in trade of 60% by 2050. Although demand will continue to grow in SE Asia and India into the 2030s, it fails to offset the rapid decline in coal imports into Europe, China, JKT and, eventually, most of the rest of the world. 

The decline in Chinese demand for coal will be one of the key features of the market over the long term with coal generation set to shrink 80% by 2050. In the mid-term we expect China to materially reduce seaborne imports as the country seeks to mitigate the impact of falling demand on its domestic coal mine supply chain. This shift represents a loss of over 300 Mt of annual import demand.  

Despite the negative demand trend, there are positives for thermal coal exporters. Coal supply is tight for bituminous coals  with major constraints on new high-rank supply as companies, financiers and governments seek to meet their ESG pledges. 

Somewhat paradoxically, despite the significant shortening of the cost curve, global marginal costs remain flat over the forecast period. Reserve decline and the reduction in thermal coal project development supports global marginal costs. The loss of reserves means that, in our base case, we still see a need for new project development after 2040. 

Reforms boost Indian domestic coal market 

Thermal coal exporters have hopes that India’s economic growth will provide a similar boost to import demand as seen in the metallurgical coal sector. Most of India's coal deposits, predominantly lower quality fuels, are found in the eastern and central regions, whereas most of its coal demand centers are in the Western and Northern regions. As such, seaborne imports can be competitive, especially for coastal power plants and other non-power users, since transporting coal across regions presents logistical challenges. 

In a bid to rapidly grow its domestic coal supply, India  has made  significant progress with widespread reforms taking place since 2015, including the Coal Supply Auction policy, and the Coal Mines (Special Provision) Act. Commercial coal mining has seen huge positive changes, after reforms removed end-use restrictions on private investors, leading to a surge in investment, and production. To date, the Indian government has auctioned 107 coal mines with a peak rated capacity of 256 Mt/y. Over the 2024/2024 fiscal year, total domestic coal production breached the 1 Bt level for the first time. 

India will rely on thermal coal imports to meet a portion of its growth. We expect absolute increases in demand to be modest, which means India won’t be the panacea many hoped it would be. 

Complexity of steel transition a positive for metallurgical coal trade 

Global steel emissions are set to tail off by 30% by 2050 in our base case. With current commercial technologies, deep decarbonisation is only really possible with the widespread switch from coke-based integrated steel production to the use of scrap and DRI in electric arc furnaces (EAFs). Because of the cost and complexity of this shift, we expect a Paris Agreement-aligned emissions reduction path for steel to be improbable. 

The situation is made more difficult by a healthy 45% steel demand growth in India and SE Asia, where the coke-based route is being given priority, which will add 150-200 Mt of incremental annual emissions by 2050. In our base case we expect most emissions savings to come from low carbon technologies at existing integrated mills. 

Growth in steel in India and SE Asia is a positive for metallurgical coal exporters as these countries rely on imports to meet the vast majority of their needs. This reliance on imports will allow the trade to grow by around 50 Mt by 2050 even while global demand falls as China’s steel demand moves into structural decline. 

Low-carbon technology options need time and lower costs 

Under our Net Zero scenario, we forecast an 84% drop in global steel emissions by 2050. We identify China as the largest potential source of reductions? – given its steel production dominance today – along with mature economies in the European Union, Japan, Korea and Taiwan. By 2050, under such a steep emissions reduction scenario, even India and SE Asia must reduce their emissions by 60-65%. 

Low carbon technologies are available, but there is no quick fix. Electric smelting furnace (ESF) technology is being touted as an option as it allows the use of lower grade iron ores as DRI feed. This technology can be combined with existing BOFs or EAFs, reducing capex by around US$150 million compared to a new build DRI-EAF plant. 

But the technology’s use in steel is still at the pilot stage and its widespread deployment is highly uncertain. Our Australian industry panelists highlighted the role of cheap natural gas as a critical transition fuel in steel decarbonisation, allowing steep emission reduction prior to the later use of zero carbon green hydrogen. Current Australian gas prices make producing low carbon steel uncompetitive. 

Hydrogen-based steelmaking to increase although cost will limit progress 

Hydrogen-based steelmaking will be required if steel is to be fully decarbonised but the technology has enormous hurdles to overcome. Our base case includes some 260 Mt of steel produced using hydrogen by 2050 - 12% of global total - but the vast majority comes on line after 2040. A Net Zero scenario would need double this amount, with approximately 42 Mt of green hydrogen to feed DRI plants or be injected into blast furnaces. 

Green hydrogen requires green renewable power. One of the major constraints to a Net Zero scenario would be the significant  renewable power capacity required globally to produce green hydrogen – some 1600 GW – which represents about 75% of current global installed renewable capacity.  

The cost to produce green hydrogen is a major constraint. Costs are need to reduce by 60% for hydrogen-based steel to compete with other steel-making processes. Government/tax-payer support will be required, as will the establishment of a wider spread hydrogen economy including more hydrogen offtakers in order to build momentum. The 17 July 2024 announcement from Fortescue Future Industries regarding its hydrogen business, just one day prior to the forum, highlighted that further work needs to be done in this sector to pave the way for a true hydrogen revolution. 

Mine supply still a key risk for metallurgical coal markets 

2024 started as a positive year for global supply. New US longwall projects dominated a healthy increase in coal capacity of around 10 Mt in 2024. Australia also looked likely to start a long-awaited recovery in exports after a drop to 151 Mt in 2023, from a record 188 Mt in 2016. But accidents at the new Longview operation in the US and Grosvenor underground mines in Australia this year have reminded us of the numerous challenges facing supply. 

Longer term, the availability of premium hard-coking coal (PHCC) is a major concern to international steel makers. Wood Mackenzie’s coal supply asset data suggests a net drop in premium low volatile HCC supply by 2027, compared to 2023. Premium mid-volatile HCCs can see net growth but we estimate it will be limited to 15-16 Mt above 2023 levels in the long term. This trend suggests steel mills will have to adjust coke blends over time, relying more on lower quality metallurgical coals, and will likely see a growing price differential between premium coals. India is focusing heavily on stamp-charged coke ovens, a strategically sensible move widening the quality of feed coals that can be used in coke-making. 

The investment environmental not ideal. We heard from industry panelists that in addition to the broad uncertainty in the economy and in emissions reduction targets, government regulation was making it harder to invest in new coal. Coal suppliers expressed a view that changes to royalties and related policies had reduced their willingness to invest in Australia, with the US and Canada considered better options for miners and steel companies looking to vertically integrate. 

Mine decarbonisation is a priority. We learned that EU steelmakers, in particular, were actively looking at supply chain emissions, as they align with CBAM requirements. However, outside Europe, mine emissions – classified as upstream scope III from a steel mill’s perspective – are not currently a target for steel mills. In Australia, steel mills are focused on scope I and II emissions. 

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