Keith Wildie, founder of ZKR Partners, provides an overview of the possible scenarios that could majorly disrupt the global coal market.
The global coal market has undergone monumental change due to innovative advances in technology, the global energy shift, evolving free trade dynamics between the world’s largest economies, and rising geopolitical tensions.
With coal still producing over a third of the world’s power, and playing a fundamental part in the production of iron and steel, it finds itself at the centre of an array of conflicting forces. These forces shape not only the commodities market, but the state of geopolitics and global economies for 2025 and beyond.
At present, the market consensus is defined by a global tapering in coal demand, which is expected to level off in 2027 as advanced nations shift from coal power to alternative energy sources. However, given connectivity within the commodities sector, several scenarios could drastically shift the current state of the market.
Global conflict
Tensions in the South China Sea continue to escalate, with China asserting its military capabilities within the region and Taiwan as its antagonist. Located close to Japan, South Korea, and North Korea, this geography is integral to the global coal market, meaning the impact of even a minor or accidental engagement within the region could be colossal. The coal market could see a major demand spike driven by countries looking to secure supply ahead of, or during a conflict, resulting in an unexpected exponential movement in the price of coal.
Global peace
It is estimated that the total cost of rebuilding Ukraine is US$486 billion and if an abrupt end to the conflict were to occur, which at present feels like at least a possibility, then the demand impact on the global steel market could be enormous. A steel demand shock would have major effects on the supply and demand for coking coal, a key ingredient in the production of steel. Again, such an event has the potential to cause havoc with the price of coal.
Emerging economies
As coal demand inevitably decreases in advanced economies, there is the potential for emerging economies, such as India and ASEAN countries, to become major coal consumers alongside China. An acceleration in India’s global growth rate has the potential to significantly change coal market dynamics in the near to medium term. Compounding the impact of emerging economies is the potential for unexpected shifts in the global Central Bank’s monetary policies, especially if inflation concerns decrease, which could create a cocktail of risk factors that would further challenge the current outlook for coal in 2025.
The global coal market is at a critical crossroads influenced by a variety of shifting forces. While coal’s role in power generation and steel production remains certain, the market’s future is anything but predictable. Whether driven by conflict, peace, economic shifts, or the global energy transition, there are a range of risk factors which could significantly shift the prevailing coal market consensus. Those who stay alert to these risk factors will be best positioned to adapt to the challenges and seize the opportunities which arise in the global coal market in 2025.
Read the article online at: https://www.worldcoal.com/coal/24022025/the-calm-before-the-storm/