IEA Forecasts a Fall of 8% in Global Coal Demand in 2020

Amid the ongoing pandemic, uncertainty about near-term outlook for coal is the highest among all fuels as its use is concentrated in the power utility sector, which in turn, is dependent on electricity demand. The ongoing slowdown in industrial activity and the resultant decline in electricity demand is likely to have an outsized impact on coal-fired electricity generation and overall coal consumption globally.

However, in its latest forecasts for 2020, IEA (International Energy Agency) has estimated that the world coal demand will fall by about 8% due to COVID-19, reflecting the largest drop since World War II.

If we look at IEA's country-wise estimates, coal demand in China is anticipated to fall by 5% in 2020, notwithstanding the gradual recovery after a 76-day lockdown imposed since February. The country's coal-fired power generation is likely to be hit especially hard, because of the presence of low variable cost hydro, wind, solar and nuclear power. However, if a more favourable dispatch for coal power plants is established, this could offer some relief for coal power producers.

In the case of India, an even greater decline in coal demand is expected, given that the country's economic growth and power production are slowing significantly. Despite a recovery expected later in the year, the consistent decline in coal-based power generation will push coal usage down for the second year in a row.

Even in Southeast Asia, the region with fastest growth in the recent years, coal power generation is curtailed by lower electricity demand, especially in Malaysia and Thailand.

IEA also expects significant declines in coal demand in advanced economies -- by 25% in the U.S., around 20% in the European Union, and 5% to 10% in Korea and Japan respectively.

However, IEA has also highlighted the fact that these projections of 2020 coal trends are largely dependent upon China. This is because the Chinese government has pledged to implement a fiscal and monetary stimulus to boost its economy. The magnitude and design of that stimulus as well as evolving energy, electricity and coal usage techniques might change the coal consumption trends significantly in China and therefore in the world.

Coal Consumption: Q1 2019 vs Q1 2020

In Q1 2020 (Jan-Mar), China's coal consumption fell by 8% against Q1 2019 as the economy contracted by 6.8% and coal power generation fell by close to 9%. Industrial production fell sharply in Jan and Feb; automobile production declined by almost 50%; and cement production by 30%, with a slight recovery afterwards.

In India, before the economy could fully recover from last year's slowdown, the government mandated the nationwide lockdown from 24 March. As a consequence, electricity demand and industrial production declined significantly in late March, leading to a new decline in India's coal use in Q1 2020, after the drop in 2019.

In case of the U.S., a mild winter and abundance of natural gas pressurized gas prices down. This, coupled with expanding renewables, further pushed coal out of the market. The decline in electricity use after the first states started lockdowns pushed coal use down even further, by around 30% in Q1 2020 and its percentage share in total energy mix to 20%.

In the European Union, coal demand fell by more than 20% in Q1 2020. The, fall in CO2 allowances did not improve coal's competitiveness with gas in the power sector and therefore was not much relief for coal, which declined 20% in Q1 y-o-y basis.