Coal market trends for 2024

Direction of travel - the only way is down

European coal prices in the first half of the year have dropped on average by around a fifth on the year, thanks in no small part to a continued decline in demand, easing concerns about supply in the wake of a ban on Russian coal and a relative abundance of gas.

Front-month API 2 prices have so far this year averaged around USD 107/t, compared with last year’s January-June average of USD 131/t and USD 266/t in the first six months of 2022, when Russia’s invasion of Ukraine saw prices surge to record levels of over USD 480/t.

Prior to the war, in 2021, Russia accounted for around 60% of western Europe’s thermal coal imports – or some 25m tonnes of a total 42m tonnes – but as the EU imposed an embargo on Russian coal imports in mid-August of the following year, the warring country’s 2022 share of the import mix contracted substantially, to just a quarter.

But at the same time, total thermal coal imports that year soared to over 60m tonnes, as traders hastily clambered over one another to secure alternative material – from Colombia, South Africa and the US. The spectre of gas shortages, as Russian pipeline flows to the region evaporated notably, had also spooked utilities, conscious of a looming winter with vastly reduced Russian fuel supply. But Europe was fortunate to experience a relatively mild winter – while LNG also came to the rescue – entering 2023 with buoyant coal stocks. Despite bumps along the way, prices have since declined, with the region focusing again on its energy transition, which by definition requires the widespread closure of coal-fired capacity.

Policy mechanisms put writing on the wall

Indeed, on the generation side, coal is slowly exiting the European power mix, as countries across the region accelerate efforts to phase out the fuel while rapidly expanding alternative, clean energy capacity, such as wind and solar.

In fact, Europe's coal-fired generation has dropped by around 60% over the past two decades, with data compiled by think tank Ember showing just 502 TWh of the fuel being burnt last year to produce power. In April, the G7 group of nations, which includes Germany, agreed to close all their coal-fired plants by 2035. But many west European countries, including Germany, are already aiming to phase out coal by the end of this decade. 

Germany’s coal burn amounted to around 41 TWh in 2023, according to German Coal Importers Association estimates. This was a drop of nearly 70% from a decade ago and the lowest since available data began in 1990. The UK – also a G7 member – will close its last plant this September, and has instead increased its consumption of gas, while expanding its already sizeable wind fleet.

Furthermore, rising carbon prices over the past decade have impacted the competitiveness of coal versus other power sources, with benchmark EUA prices, which averaged just EUR 5.60/t in the first half of 2014, having risen to an average of EUR 65.50/t so far in 2024. This combined with lower gas prices and cheaper renewables cost has given the region’s coal burn a notable dent.

Fading relevance impacting prices

So what can we still expect for the European market in the near-term, as it enters its twilight years? A glance at the API 2 forward curve would suggest little expectation of severe supply shortages or surging demand, with the 2025 contract just USD 2 above the fourth-quarter value and the following year’s contact again just USD 2 higher.

While some demand, notably in eastern Europe, will linger for longer, and we can still expect sporadic price shocks along the way – when a train is derailed in South Africa or sudden cold snap squeezes stocks – in the big scheme of things, coal’s days in Europe are coming to an end. Like an elderly gentlemen, slipping on his slippers and easing slowly into a heavily worn armchair, beside the flickering embers of a dying fire, coal in Europe will probably just go gentle into that good night.