The World Bank’s economists have painted a bleak picture for global coal prices in the next three years even if by historical standards it’s still looking good.
In its latest monthly global commodity outlook, the Bank forecasts coal prices will fall 49% this year, 26% in 2024 and 15% in 2025, assuming the conflict in the Middle East does not escalate. But this is still well above the 2015-19 price, notes the Bank.
Coal rose with the commodities boom but it had its own spectacular trajectory, when consumption ramped up as a result of Russia’s invasion of Ukraine and the gas shortages caused. And while it was widely expected that coal consumption would slide as the world transitioned away from fossil fuels in the next decade or two, that process is far from linear.
The Bank sees growth in coal consumption slowing, but while there will be declines in the US and Europe, China and India will keep growing, if more slowly. While coal demand for power will decline, industrial demand could pick up. And the pattern is that consumption will shift towards Asia with China and India expected to account for 70% of coal consumption by the end of 2023.
That is good for SA, which over the past couple of decades has relied mainly on India and China as its coal export markets, even though Europe made a brief comeback in the wake of the Russia/Ukraine war. SA also has the dubious advantage of a currency which has tended to weaken, so that it is hit relatively less hard by declines in global prices.
But it has its own idiosyncratic issues which make the downward trend in global coal prices a particular concern. SA’s inability to provide reliable electricity or railway lines meant it managed not to have a mining boom even when there was a commodities boom. The disaster at Transnet over the past three years has rendered coal exporters unable to take anything like full advantage of the global surge in demand and prices. And though the government did finally intervene at Transnet and the private sector is working closely with the rail operator to try to fix the problems, it will take time.
All of that has to be seen in the context of a coal industry that employs more than 90,000 people, and supports whole towns in Mpumalanga. It’s an industry at risk in the longer term. Exports account for 56% of SA’s coal industry by value; they also account for a big chunk of Transnet’s income.
But it is domestic production, for Eskom power stations, that’s the core of the industry. And the inevitable decommissioning of Eskom’s old coal-fired power stations after 2030 is expected to halve domestic coal demand over time. This, said the Minerals Council SA earlier in 2023, “will mean the export market will become key to maintaining mining and logistics jobs in SA”.
That’s why the World Bank’s predictions for global market dynamics need to be closely watched. It is also, crucially, why SA needs to get its act together on energy and logistics and make sure we maximise our export potential. We can’t have coal producers cutting production as they have been doing because Transnet can’t get the stuff out to the ports. We can’t afford to fall further behind in the downturn and we need to position for any upturn.
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