Global coal market largely driven by China: IEA

In 2011, demand for coal accounted for almost a third of total global energy consumption--the largest growing fuel is now the second-most important source of energy behind oil. By 2014, coal consumption is projected to account for more than 50 percent of global demand, according to the International Energy Agency (IEA).

"Development of the global coal market will largely be driven by China through its economic growth, infrastructure investments and energy policies," says the IEA's latest Medium-Term Coal Market Report 2012, which looks at outlook and trends in the global coal industry. China replaced Japan in 2011 and has become the world's largest coal player. It accounted for more than three-quarters of coal production and consumption was more than three times that of global trade in the same year.

IEA also projected India's coal imports to be the world's fastest-growing. It could potentially surpass the US as the second-largest coal consumer by 2017, and in case of a demand slowdown in China, will be the top global importer.

In general, developing countries with their growing economies, populations and hence, rising electricity consumption have driven coal consumption.

Conversely, coal demand among OECD countries fell to levels seen in 2000. Even then, Europe has made the switch to coal, in part due to the shale gas revolution in the US, which has made US coal unattractive domestically. Coupled with the retirement of coal-fired power plants due to environmental regulation, coal consumption is set continue to decline in the US.

"Our price assumptions for coal and gas price development offset the current imbalance in favour of coal in Europe, with gas recovering its position by 2017," says the report.

On the supply side, Indonesia replaced Australia as the largest coal exporter globally for the first time in nearly three decades, with an 18.4 percent increase per year. This was particularly driven by demand from China.

In fact, Indonesia accounted for almost half of total seaborne coal market growth. Its abundant reserves, cost competitiveness, transport infrastructure availability and proximity to coal importing countries in Asian economies proved advantageous.

Yet, it is not likely to continue its recent ramp up over the coming years. The report noted that with energy adjusted exports, Australia remains the world's largest exporter of coal and will hold onto its top position until 2017. Export growth in Australia is projected to outperform Indonesia ifChina's importdemand remains strong. Investments in the country continue to support its export strength. Countries including Russia, South Africa and Colombia have also stepped up their roles in the coal value chain.

International coal markets, however, remain bleak until 2017. Investors are cautious over low prices, and some companies have already announced the possibility of layoffs and slow-down of investments.

Concerns about China's economic development, the fall in US coal prices and uncertainties surrounding the European sovereign debt crisis have hampered investments.

Considering the significant lead time needed to ramp up supply, decelerating development projects might tighten coal markets.

The IEA is an autonomous organisation which works to ensure reliable, affordable and clean energy for its 28 member countries and beyond.