Spend Matters welcomes another guest post from Nick Smith of Mintec.
Global coal prices have been following a downward trend for a number of years. Prices are down in several key countries around the world, and the US is no exception, with Appalachian coal down a further 10% since the beginning of 2013 alone.
After China, the US is the largest producer and consumer of coal in the world, producing 992m tons of coal in 2012. The Western, Appalachian, and Interior Coal Regions are the three main coal-producing regions in the US, with over half of US coal coming from the Western Coal Region. Twenty-five states contribute to US coal production, Wyoming being the largest, and the US is estimated to have the world’s largest recoverable reserves.
Prices have been falling due to a range of different factors. One of these is the global growth in production, with production growing faster than consumption in recent years. Last year global consumption grew by 2% to 7,843m tons, whilst production grew by 3% to 7,878m tons, resulting in a market surplus. Coal consumption growth in China, the world’s largest consumer, is estimated to have slowed to 4% year on year in 2012, down from 10% in 2011, as the economic slowdown in China affected demand.
Currency depreciations against the USD in Australia and South Africa, two other major coal producers, have also affected international prices. The falling value of the Australian Dollar and South African Rand earlier in the year allowed producers to lower prices in USD terms.
90% of coal in the US is used to produce electricity. The increase in available natural gas due to the growth in shale gas exploitation has up until recently provided a cheaper, cleaner alternative energy source. The proportion of electricity produced from coal has declined to 37% to total electricity down from 50% a decade ago, now almost at the lowest level in over 60 years.
However, the continuing drop in coal prices and recent rises in natural gas prices should lead to a recovery in the amount of coal used for electricity generation. Despite this, the global growth in coal production looks set to keep prices down for the foreseeable future.