The coal sector has undergone two major changes in the last decade. One change is in the global demand structure: As of 2000 coal demand from developing countries started increasing in an unprecedented way, the bulk of the increase coming from steam coal demand for power generation. Coal has provided China, India and other emerging economies with affordable and dependable electricity supply and fuelled the economic growth in these countries.
The other change is the emergence of derivative coal markets. The OTC swaps markets for coal have been thriving since the 1990s. However, creation of coal futures exchanges, which have better transparency than OTC markets, came later than for the other commodity markets. In recent years, futures exchanges for coal have been established in the US, Europe and Australia and the role of futures exchanges is growing in the coal sector. This study examines pricing of internationally traded coal under these changing circumstances.
In 2008 the financial/economic crisis resulted in extreme volatility in the commodity market. All the commodity prices including coal and oil prices went up and came down sharply at a scale the commodity markets had never seen before. This report also looks into how coal prices went through this bubble period.
Coal comes with a substantially higher emission of CO2 than other fossil fuels. To address the challenge of decarbonising the energy sector emission trading schemes were introduced recently, mainly in the European Union. CO2 emission allowance prices already have an influence on coal markets, which will likely grow in the future.
This study was produced under the Work Programme of the Energy Charter Secretariat for 2009. The draft report was approved by the Trade and Transit Group meeting on 18 February 2010.