This commodity guide focuses on coal as a commodity and energy source.
We cover the most common uses of coal and what makes the commodity valuable. After reading this guide, you’ll know how coal is mined and which nations produce, export, and import the most coal in the world.
Read on to find out what experts say about the present and future of the coal market.
Interested in learning how coal is traded? See our full guide, or if you want to get started trading in coal right now, here are options available in to consider:
Disclaimer: Availability subject to regulations.
Between 74-89% of retail investor accounts lose money when trading CFDs.
Contents
Main Uses Of Coal
We’ve categorized coal’s main use cases as a commodity into four groups:
| Uses of Coal | Description |
|---|---|
Power Generation | Steam coal, also known as thermal coal, provides a source of electricity. |
Steel Industry | A form of coal known as coke or metallurgical coal is used to smelt iron ore and produce steel. |
Miscellaneous Industries | The following industries use coal: Refined coal tar is used to manufacture specialty chemical products including: Ammonia gas from coal ovens is used to create: Coal Byproducts are found in: |
Specialty Products | Coal is used to make: |
What Makes Coal Valuable?
Coal is a fossil fuel formed from dead plant matter trapped between rock deposits.
Over a period of millions of years, biological and geological processes turn this material into peat and then through further metamorphosis into lignite, sub-bituminous coal, and finally anthracite coal.
Coal has been used as an energy source throughout human history. Cavemen used the rock to heat their caves.
During the Industrial Revolution, its use proliferated as energy needs expanded. Today, coal still generates a significant chunk of global energy supply and plays a key role in several industries.
How is Coal Mined?
Coal miners extract coal by one of two methods:
- Surface mining in open pits
- Deep mining in underground shafts
The geology of a deposit of coal determines which of the methods miners use. Underground mining currently represents a larger share of world production than surface mining.
According to estimates, global coal production totaled to 7921 metric tonnes in 2019. See the top ten coal producing countries in the world.
The Future Outlook For Coal Mining
It may not be economically feasible with current technology to mine some of the proven coal reserves.
It is unlikely that significant new coal reserves will be found. After centuries of mining, geologists have a very good understanding of the size and location of global coal deposits.
Global coal production had been growing steadily since 1970. In recent years production numbers have declined precipitously as more countries turn to cleaner form of energy.
Biggest Global Coal Producers
As of 2019, the ten largest coal producing countries were:
| Rank | Flag | Country | Amount (mT)* |
|---|---|---|---|
| #1 |  | China | 3693 |
| #2 |  | India | 769 |
| #3 |  | USA | 640 |
| #4 |  | Indonesia | 616 |
| #5 |  | Australia | 503 |
| #6 |  | Russia | 418 |
| #7 |  | South Africa | 254 |
| #8 |  | Germany | 131 |
| #9 |  | Poland | 112 |
| #10 |  | Kazakhstan | 104 |
*This information is from the International Energy Agency (IEA)
Most coal production remains in the country where it’s mined. About 15% of global production is exported to foreign markets. The top importers of coal briquettes in 2018 were India, Japan, China, South Korea, and Chinese Taipei.
Delaware is one of the leading US states in fossil fuel-derived energy production.
Top Coal Exporting Countries
Here are the seven largest coal export economies in the world:
| Rank | Country | Amount* |
|---|---|---|
| #1 | Australia | $57.2bn |
| #2 | Indonesia | $22.1bn |
| #3 | Russia | $18.9bn |
| #4 | USA | $13.1bn |
| #5 | Colombia | $7.45bn |
| #6 | South Africa | $6.71bn |
| #7 | Canada | $6.04bn |
*based on 2018 OEC data
What Drives Coal Prices?
Coal prices can fluctuate for a variety of reasons, but the 5 most common ones include:
- Emerging Market Demand
- Substitution
- Environmental Concerns
- Transportation Costs
- Government Regulations
Emerging Market Demand For Coal
Electricity consumption in emerging economies has a significant effect on coal demand and coal prices.
Emerging market countries, especially China, have been transforming their economies from agrarian to industrial and information-based.
This transformation requires significant infrastructure, building construction, and urban development.
Building modern societies requires modern electric power grids and heavy electricity consumption. As more emerging market citizens move into cities, the need for power will continue to grow.
Substitution: Alternative Energy Sources
Coal competes with other sources of power including natural gas, solar, wind, and hydroelectric power. Natural gas, as an example, often competes strongly with coal on price and is a cleaner form of energy.
Other energy sources such as wind and solar are far more expensive than coal, but are much cleaner.
As technologies improve, cost-competitive substitutes for coal may emerge. These substitutes can have a major impact on coal demand and coal prices.
Environmental Concerns Over Fossil Fuels
Coal has a reputation as a very dirty and environmentally unfriendly form of energy.
The scientific community warns that burning coal raises carbon dioxide levels and contributes to global warming
The coal industry has responded to these criticisms by developing and touting cleaner coal initiatives. Carbon emission capturing and storing represents a potential solution.
See which US states are considered the least-carbon intensive regional economies.
Clean coal technologies are expensive and threaten to upend coal’s economic competitiveness with other energy sources.
The ability of the industry to reduce the environmental footprint of coal could have a big effect on coal demand and prices.
Coal Transportation Costs
Transporting coal from mines to consumers requires trains, barges and trucks. All of these modes of transportation use diesel fuel, so changes in its price can have a significant effect on coal prices.
With cross-country shipments, the cost of transportation could exceed the price of coal at the mine.
On average, transportation represents about 20% of the overall cost of coal.
Philip Pena via Pixabay
Government Regulations On Fossil Fuels
Clean air regulations in developed countries have resulted in declining coal production.
Concerns about environmental pollution and its effect on global warming have led governments to enact laws limiting carbon emissions. Such regulations have the effect of making coal economically unfeasible.
If these regulations intensify, then more coal plants will shutter creating reduced supply and higher prices.
What Do the Experts Think About Coal?
Despite the gradual growth of renewable energy sources, industry experts reported a rise in thermal coal prices due to Chinese developments and demand.
“Thermal coal prices have risen extremely fast over the past few weeks, primarily driven by the developments in China,” said analysts at CRU in a report.”
Analyst at CRU Group via FT.com
The drop in coal consumption during 2020 has been the most significant since the 1940s. Others also believe that China’s quick economic rebound is what keeps coal demand at current levels:
“The decline would have been even steeper without the strong economic rebound in China – the world’s largest coal consumer – in the second half of the year.“
Keisuke Sadamori – IEA’s Director of Energy Markets and Security
Where Can I Trade Coal?
Interested in trading coal? Start your research and see what coal instruments are offer with these brokers available in .
IMPORTANT: CFDs are not available in the USA due to local regulation, and regulated brokers do not accept US citizens or US residents as clients.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
Further Reading
Learn more about what instruments are available to trade coal in this Coal Trading Guide.
We also have several other energy commodity guides on:
- How electricity is produced and used
- Ethanol’s role as an energy source
- Natural gas‘ value in the energy market
- How crude oil is produced
- US states most dependent on coal to produce electricity
