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Integration of Global Coal Markets

A lack of integration in the world coal market has seen it divided for a number of years into the Atlantic and Pacific regions but there is growing evidence that this is no longer the case.

Coal continues to be the predominant fuel for electricity generation worldwide, and a main source for global energy supply. Coal generates today over 41% of the world’s electricity and while its growth has slowed as it is losing market share to natural gas, coal consumption is still expected to grow at 0.5% per annum over the next 20 years. A lack of integration in the world’s coal market has seen it divided for a number of years into the Atlantic and Pacific regions, in particular because of the cost of bunker fuel compared to the value of the coal being transported.

The Pacific region has been playing a more important role in the physical coal trade in recent years, with the growing importance of India and China on the demand side and Indonesia on the supply side.

In parallel, the shale explosion in the oil and gas industry in the United States had a fundamental impact on the American coal market, and will continue to do so independently of the government views as long as US natural gas prices remain extremely low. In this context, one of key questions is to ask whether the Pacific and Atlantic regions are still divided.

Coal market integration?

In two early studies in 2006, Ekawan and Duchêne describe the hard coal markets in the Atlantic and Pacific regions respectively, andallude to the integration between the two markets, without empirically testing the hypothesis.

In that year, Wårell examined whether the European and Japanese markets were integrated between 1980–2000 for both the steam coal and coking coal markets. For steam coal, the result supported the hypothesis of an integrated market. In order to test market integration over time, the author also applied co-integration tests to two sub-periods, the 1980s and the 1990s and concluded that no integration could be confirmed for the 1990s.

Li et al in 2010 investigated the hypothesis of a single economic market for the international steam coal industry. Using multiple methods, they conclude that, in general, the international steam coal market could be seen as integrated over that time period. Zaklan, in 2012, add the logistics perspective and concluded that there was a significant, yet incomplete, integration.

Papież and Śmiech (2013) use instead a causality methodology to investigate the international steam coal market integration, especially dependencies between different markets. They analysed weekly export and import data in seven markets (Indonesia, Australia, Japan, Korea, Netherlands, South Africa and Colombia) from 2002 to 2011. They concluded that the most important factor in the Pacific market was Australian coal; while in the Atlantic market, ARA and Richard Bay prices had the biggest influence on other prices—results which confirm the role of Australia and South Africa as a major producing country in each region.

The most recent work, published late last year by Liu and Geman, revisited the integration of the world coal market and undertook a statistical analysis of ten indexes related to ten important, importer and exporter countries, over the past decade.

Surprisingly, their empirical tests showed that China does not belong to  the global market, probably because of its large production and national policies. For the US, the Principal Component Analysis (PCA) shows a deviation from the other eight markets, while co integration tests provide evidence of integration with the other eight markets.

Their proposed explanation for this contradiction is the central location of the US between the Atlantic and Pacific oceans and the existence of futures contracts on the US index. The PCA also shows that the other eight markets are integrated as a global system.

The separation between the traditional Atlantic and Pacific basins is visible in the PCA only when the less important third components are displayed. Co-integration tests lay some support to this conclusion: there are several cross-regional co-integrated pairs (South Africa to India for example) and that multiple tests also confirm that the global system is integrated.

Coal focus moves East

They also argued that the major coal markets are moving East and provided three supporting pieces of evidence:

  1. By reporting the remarkable reversal in 2015 of the lead/lag relationship between six pairs of major indexes;
  2. By analysing the dramatic demise of the four leading US coal miners as evidenced by the behaviour of their share prices from 2013-2016. Their collapse was partially due to the emissions reduction policy of the previous administration, but primarily to the gigantic production of shale gas and the replacement of thermal coal by cheap natural gas in the production of electricity;
  3. By describing the actual and forecasts of coal consumption across the world


Southeast Asian countries including Malaysia, Thailand and Vietnam are seen as growth markets for the consumption of imported thermal coal as coal-fired electricity is used to fuel their fast-growing economies.

Eight of the most populous countries are in Asia, and with 54% of the world’s population live now living in the continent, the growing demand for energy will inevitably be focused on this part of the world. As global coal markets continue to integrate and as political, economic and environmental legislation continues to push the West away from Coal, Asia will certainly be of key importance to coal miners, shippers and generators

Written by Patrick Avis. Published 13 April 2017 in Energy Analyst

This month's top international coal headlines

  • South African coal retains competitive edge in India — Platts CTI
  • South African seen as alternative for Taiwan, South Korea — Platts CTI
  • South Africa competitive — Platts CTI

2017 archive

April 2017
  • South32 amends coal and metals output expectation — Mining Weekly
  • S African March exports edge 0.9% lower on-year to 6.32 million mt
    — Platts CTI
  • Can coal make a comeback? — Center on Global Energy Policy
  • South32 lowers S African FY2016-17 thermal output guidance — Platts CTI
  • South African coal falls as offers pull back — Platts CTI
  • Solving Energy Poverty, Unemployment, and Growth Challenges in South Africa — Cornerstone
  • South African coals sold in India stock-and-sale market — Platts CTI
  • Integration of Global Coal Markets — Energy Analyst
  • An Own Coal? Energy policy in Indonesia — The Australia Institute
  • Tight South African thermal coal availability keeps Indian deals dry — Platts CTI
  • Ukraine’s DTEK to import 600,000t of anthracite from South Africa — Platts CTI
  • Surge in South African prices — Platts CTI
  • Anglo-American sells Eskom-tied coal operations in SA — Platts CTI
  • The Southeast Asian Coal Market – the Next Success Story? — Coal Asia
  • Coal can be more profitable and efficient going forward, expert says — CNBC
  • India favours South African coal — Platts CTI
  • South Africa price surge — Platts CTI
March 2017
  • S African Feb thermal coal exports rise 36.2% on-year to 6.57Mt — Platts CTI
  • Steady flow of South African coal into India — Platts CTI
  • Coal Power Has Taken a Tumble, But Is It the Beginning of the End?
    — MIT Technology Review
  • Indian buyers look to cheaper S African cargoes — Platts CTI
  • Slowed buying of South African coal — Platts CTI
  • Some Miners Are Going Back to Work in Coal Country — FOX News
  • Japan’s renewed commitment to coal — World Coal Magazine
  • Xinjiang to close 117 small coal mines in 2017 — China Daily
  • Coal drags but mining production still on the up — Fin24
  • Indonesia’s Electricity Demand and the Coal Sector: Export or meet domestic demand? — The Oxford Institute for Energy Studies
  • S African unions plan strikes against Eskom coal plant closures — Platts CTI
  • Exxaro unlikely to exercise pre-emptive right over RBCT stake — Miningmx
  • Indian interest for South African coal — Platts CTI
  • Eskom stalling renewable energy agreements costs billions — Business Live
  • Trump is poised to issue a sweeping order dismantling Obama’s climate plan this week — The Washington Post
  • Eskom initiates talks on triggering government support to cover IPP costs
    — Engineering News
  • Mid CV S African coal may displace Indonesian coal into India — Platts CTI
  • Ongoing buying interest for South African 4,800 NAR — Platts CTI
  • Is the Middle East the new home for coal? — Energy Analyst
  • Coal-boosted Exxaro’s earnings soar — Mining Weekly
  • S African coal garners more interest in India — Platts CTI
  • Normal railings resume on S Africa's coal export line — Platts CTI
  • Tightness for South African coal — Platts CTI
  • SA Mining is on its knees – can it be saved?
  • Derailment partially disrupts line to S Africa’s RBCT — Platts CTI
February 2017
  • Steep discounts increase interest for off-spec South African coal — Platts CTI
  • S African Jan exports fall to 6-month low — Platts CTI
  • S African Jan exports fall 8.8% on-year to 6-month low of 5.62Mt — Platts CTI
  • Indian buyers interested in 4,800 NAR S African coal over 5,500 NAR
    — Platts CTI
  • S African coal miners look to domestic market for higher prices — Platts CTI
  • South African coal at slight premium to Newcastle — Platts CTI
  • Eyes on South African supply — Platts CTI
  • Coal Will Be One of the Cleanest Uses of Technology That We Have, Says Sean Spicer — The Independent
  • White House Press Secretary: We’re Going to Bring Back Coal in an ‘Environmentally Friendly’ Way — Greentech Media
  • Australian versus South African coal — Platts CTI
  • High South African prices deter buyers — Platts CTI
January 2017
  • S Africa’s Universal Coal concludes export agreement — Platts CTI
  • Richards Bay coal struggles to find market on high price — Platts CTI
  • Platts to launch netback FOB Richards Bay 6,000 NAR calculated quote
    — Platts CTI
  • South African demand dwindles — Platts CTI
  • Colombian thermal coal exports rise 9% in 2016 to record 88Mt — Platts
  • Some interest for Mozambique coal — Platts CTI
  • Richards Bay 6,000 NAR netback calculation proposed — Platts CTI
  • Coal production declines in 2016, with average coal prices below their 2015 level — U.S Energy Information Administration
  • South African Nov thermal coal exports up 6.5% on-year to 23-month high
    — Platts CTI
  • Richards Bay FOB spot loses almost $2, trades for third straight day
    — Platts CTI
  • South African material sees interest — Platts CTI
  • South African FOB spot loses $3 on lower offers — Platts CTI

2016 archive








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