Global coal power generation is expected to decline in 2019, but that is unlikely the start of a lasting trend as demand for the fuel will remain stable due to rising demand in India and other Asian countries offsetting declines in the United States and Europe, wrote the International Energy Agency in its latest analysis of coal markets.
Coal miners in the United States and Colombia will likely struggle due to the collapse of European Union coal imports and competition from Russian producers as investments in coal mining assets in general face strong headwinds. Chinese coal demand, which accounts for roughly half of the world's coal consumption, is expected to increase slightly and then plateau around 2022, but the forecasted demand from the country is sensitive to potential future policy measures.
Ultimately, the IEA's coal demand forecast changed little from the previous year, the organization noted. While a "combination of unusual circumstances" appears to have led to the largest-ever drop in coal power generation in 2019, that decline in coal consumption is within a range of annual fluctuations that would imply that global demand will remain broadly stable over the course of the next decade.
Global coal use increased by 1.1% in 2018 as the fuel maintained its position as the largest source of electricity in the world with a 38% share, the IEA reported. Coal mine production rose 3.3% in 2018 as four of the world's six largest coal-producing countries increased their output. Russia, India and Indonesia each recorded record amounts of coal production in 2018. Average coal prices in 2018 were about 60% higher than in 2016.
"Stronger-than-expected climate policies targeting coal are probably the main factor that could affect coal demand. Lower natural gas prices could also change our forecast, as well as slower economic growth," the report states. "China will ultimately determine global coal trends through 2024 and beyond since it currently accounts for half of global consumption."
Particularly in the U.S. and Europe, the natural gas sector continues to pressure coal generation due to lower costs. At the same time, renewable energy resources are becoming increasingly competitive compared to fossil fuels.
Weakness in those markets is impacting investor sentiment around the industry. Focused primarily on U.S.-based coal companies, Seaport Global Securities LLC analyst Mark Levin wrote in a December 16 note to investors that there is not much investor interest in coal mined for power generation.
"This isn't to say things can't change for the better in 2020. It's just that so many investors are having a hard time understanding why they would," Levin wrote. "While some might argue the lion's share of the equity damage has already been done to thermal names and that sentiment is so bad that almost any incremental news has a better chance of being positive than negative, we suspect most investors will continue to stay away from steam coal-centric names in early 2020 unless natural gas or seaborne utility coal prices give them a reason to change course."
Several non-governmental organizations, such as insurers and financial institutions, are showing a commitment to acting on climate change and increasingly distancing themselves from the carbon-intensive coal industry. While many of the early activist campaigns against coal centered on European and U.S.-based companies, those efforts are pivoting to other countries as well. Such efforts are compounding coal's struggle against challenging market and policy environments.
"Together, these factors are shrinking the role of coal power generation in advanced economies," the IEA report states. "These shifts have raised expectations once again that demand for coal is about to collapse. However, global coal demand has rebounded since 2017. Although it will probably decline in 2019, we expect it to remain broadly steady thereafter through 2024."
IEA expects India to see the highest growth in coal demand of any country. The nation's growing economy and focus on building out its infrastructure could support a 4.6% per year growth in coal demand through 2024, the IEA projects. Meanwhile, Vietnam and Indonesia will drive a 5% per year increase in coal demand from Southeast Asia, based on the IEA's forecast.