The coal shoulder: India consumption surpasses Europe, North America

Global coal consumption in 2026 is poised to be 2.3% lower than in 2023, although India now surpasses North America and Europe combined in a ‘coal shoulder’ rebuke of the global transition to net zero.

However, the International Energy Agency (IEA) says in fact “China will have the last word” when it comes to coal.

Coal consumption in Australia is set to decline through 2026, which the IEA says is driven by both lower domestic demand and exports. Other advanced economies such as Canada, Japan, and South Korea are also expected to see rates of decline.

However, the growth in China (about 5%) and India (more than 8%), as well as in Indonesia, Vietnam, and the Philippines combined represent more than 70% of global coal demand.

The IEA says this will more than offset these decreases on a global level.

“Overall, we expect global coal demand to drop in 2024 and plateau through 2026, even in the absence of governments announcing and implementing stronger clean energy and climate policies,” the IEA reports.

In 2023, global coal demand reportedly grew by 1.4% both in power and non-power sectors to about 8.54 billion tonnes – a new record.

According to the most recent data from the Energy Institute’s Statistical Review of World Energy, India now consumes more coal than the continents of Europe and North America combined.

Shouldering much of the consumption

Coal consumption in Europe and North America was at a high for a long time but has significantly declined in recent decades. Concurrently, as India has industrialised and is growing rapidly its consumption has steadily increased.

Our World in Data notes that India has a huge demand for cheap energy and the country is tapping its abundant coal reserves to meet this demand.

“On a per-capita basis, coal consumption in India has only just passed levels in either region. That’s after centuries of higher consumption in North America and Europe,” Our World in Data reports.

China has ‘last word’ on coal

In the Department of Industry, Science and Resources’ (DISR) latest issue of its Resources and Energy Quarterly: March 2024, demand for metallurgical coal reached 317 million tonnes in 2023, growing by 8% from 2022. India and China drove the majority of this growth, with DISR reporting China has been drawing in rapidly growing coal flows from Mongolia via recently upgraded rail links. In 2023, India overtook China as the world’s number one importer of seaborne metallurgical coal, though China still retains top spot for overall (land and sea) metallurgical coal imports.

“Demand from other markets was broadly stable through 2023, with South Korea, Taiwan, and Europe totals similar to their 2022 volumes,” DISR reports.

“Demand from Japan was subdued, falling to 40 million tonnes in 2023 from 43 million tonnes in 2022. World steel output is expected to grow at 1.5% per year over the outlook period, providing a strong baseline for metallurgical coal use in the medium term.

“World metallurgical coal demand is projected to rise from 317 million tonnes in 2023 to 331 million tonnes by 2029. Numerous Asian countries continue to progress ambitious steel plans, and despite some delays associated with the pandemic and various geopolitical problems, it is likely that the pace of steel production in the region will pick up over time.

“Metallurgical coal imports are thus expected to grow in a range of Asian nations including India, with other areas including the European Union also holding up relatively strongly.”

India’s imports of metallurgical coal grew by 25% to an estimated 73Mt last year. India has been investing heavily in steel production capacity in recent years; the government is looking to double steel production capacity to 300 million tonnes by 2030.

“Hence, steel production (and consumption) is expected to increase significantly over the outlook period (by 1.3% per year and 6.5% per year, respectively). As its steel production has expanded, India has surpassed China as the world’s largest importer of seaborne metallurgical coal in 2023,” DISR reports.

“Growth is expected to continue through the outlook period, driven by India’s manufacturing and construction sectors. While India is also increasing its production of metallurgical coal, this increase is not expected to keep pace with demand. Seaborne metallurgical coal imports are expected to increase from 73 million tonnes in 2023 to 89 million tonnes in 2029, with most of this additional supply drawn from Russia and Australia.”

While consumption of coal in India now surpasses the continents of Europe and North America, the IEA says the dominance of China in coal markets is stronger than any other country for any other fuel. China consumes more than 50% of the world’s coal and produces half of it – and it’s the largest importer, accounting for close to a third of the global coal trade.

“But India and ASEAN also exert a growing influence – helping further shift the focus of the coal market towards Asia,” the IEA adds.

“In 2000, advanced economies accounted for almost half of global coal consumption (48%), while China and India together accounted for 35%. Coal consumption has declined in the European Union since the 1980s and in the United States since the 2000s, whereas it has grown strongly in China, India and ASEAN.

“As a result, in 2026, we expect China and India to account for more than 70% of global coal consumption. By contrast, the European Union and United States are expected to each account for around 3% of global coal consumption. This increasing gap in reliance on coal between countries could present challenges for future international dialogue on the need for rapid decline in global coal use to reach climate goals.”

Australian metallurgical coal production and exports have been constrained in recent years by bad weather and logistical problems. However, DISR says demand factors also played a role, including relatively soft steel production among some regional importers, and sustained low exports to China even following the removal of trade restrictions.

Supply side

Australia remains the largest metallurgical coal producer globally, accounting for 53% of all exported volume. Australia’s exports increased by 10Mt last year as disruptions induced by La Niña in the past few years began to recede.

Indonesia again has proven to be a flexible exporter and in 2023 exported close to 500 million tonnes, a level the IEA reports has never been reached by any country before.

Meanwhile, according to the IEA efforts by Russia to replace its former European energy customers continue, with about 50% of 2023 exports directed to China – up from less than a quarter in 2021.

In terms of thermal coal, markets have been relatively stable over the March quarter 2024. The 6,000 kcal Newcastle price has averaged US$127 a tonne across January and February, compared with US$135 a tonne in the December quarter 2023, according to DISR.

“In the near term, seaborne thermal coal imports are expected to be subdued by high inventories across several markets and by decreased demand from China — impacted by Chinese New Year holidays,” DISR reports.

“There is also the high likelihood of a La Niña weather event reappearing in 2024, bringing with it heavy rainfall likely to be generally unfavourable to coal production and transport in Australia and Indonesia. Trade in thermal coal is expected to broadly decline over the next five years, though with significant variance between nations.

“The pace of this decline is still uncertain with industry experts predicting a wide range of scenarios driven by varying energy transition plans and the pace of renewables uptake. Slowing demand is expected to remove some price pressure over time. World demand for thermal coal is still expected to be dominated by Asia.”

Global seaborne imports of thermal coal are expected to fall at an average annual rate of 2.6% per year in the coming years. Volumes traded are expected to decrease from an estimated 1,120 million tonnes in 2023 to 957Mt by 2029, with China and Europe being the largest contributors to the decline.