How to Invest in Coal (Updated 2023)

For thousands of years, coal has been an important source of heat and energy.

The fossil fuel played a crucial role in the Industrial Revolution, and today it’s the largest source of energy for electricity generation in the world — in total, coal generates over one-third of the world’s electricity.

But is coal’s role in the energy landscape fading? Maybe — there’s still a case to be made for the world’s dirtiest energy source. ‘If the increase in the world’s temperature is to be limited to 1.5°C, coal production must fall by more than two-thirds over the course of this decade,’ reports the Economist. ‘Instead it is projected to fall by less than a fifth.’

Global coal demand had been on a slide in recent years, especially in Europe and the US, but 2021 saw a reversal of that trend, according to the International Energy Agency’s (IEA) Coal 2021 report. Lower supply and rebounding coal demand in China — the world’s largest consumer — pushed prices for the material to record highs in 2021. And yet coal’s role in the global energy mix still declined, representing 36 percent of the total in 2021, or five percentage points below its peak in 2007.

In its more recent report, the IEA stated that coal reached a new all-time high in 2022 and global consumption of the fossil fuel is expected to remain high throughout 2023. However, whether or not coal is here to stay or facing its demise depends on jurisdiction. The IEA explains that ‘coal demand fell faster than previously expected in the first half of (2023) in the United States and the European Union – by 24% and 16%, respectively.’

Times and attitudes have changed, altering the trajectory of coal and leaving its future less certain than it used to be. Cleaner, more renewable forms of energy are set to overtake coal in the coming years.

How much impact the renewable energy revolution will have on the global coal market and how soon it will happen depends on how quickly such policies and technologies are adopted in China and India. In July, the IEA projected that the two Asian nations will account for 70 percent of global coal demand in 2023.

Read on to find out more about how to invest in coal and what the landscape looks like.

What is coal and how is it used?

Coal is a fossil fuel that contains the stored energy of prehistoric vegetation. According to the World Coal Association, it dates back to 360 million years ago, and was formed when swamps and peat bogs were buried due to shifts in the Earth’s tectonic plates. Subjected to pressure and heat deep underground, the plant material in the swamps and bogs underwent a chemical reaction, creating coal.

Coal is classified at various levels of carbon content, determining the amount and quality of energy it produces. The most commonly mined classifications are sub-bituminous coal and bituminous coal. The two other types of coal investors should be aware of are lignite and anthracite.

Sub-bituminous coal is used primarily as fuel for steam-electric power generation. For the most part, bituminous coal serves the same purpose, but it can be used for heat and power applications in manufacturing too. Additionally, bituminous coal can be used in the production of coke, a key ingredient in steel fabrication.

What are the top coal producers and consumers?

As of 2022, the five top coal-producing countries were China, India, Indonesia, the US and Australia. China is by far the leader, producing 4.43 billion metric tons in 2022 compared to the next largest producer, India, at 937 million metric tons. Japan, India, China, South Korea and Taiwan are among the largest importers of coal.

The US, Russia, Australia, China and India are the countries with the largest proven coal reserves, representing 77 percent of total global coal reserves.

Understanding the coal market today

Environmental concerns are one of the main reasons some market watchers believe coal’s role in the energy mix is set to fade in the coming years and decades. Both mining coal and burning it for energy are problematic, with two of the key issues being pollution and greenhouse gases.

Coal pollution, caused by the emission of contaminants such as sulfur dioxide, nitrogen oxides and mercury, affects human and environmental health; meanwhile, greenhouse gas emissions contribute to global warming. Climate change concerns are growing across the world, and attitudes towards coal have turned sour in many places in favor of renewable energy sources.

Many countries have laid out plans to phase out coal in the near to medium term, including Germany (which has the largest fleet of coal-fired plants in Europe), Canada, the UK, Finland, France, Chile, Ireland, Israel, New Zealand, South Africa and Denmark. Belgium has been coal-free since 2016.

COVID-19 placed downward pressure on coal demand for electricity generation. According to a report from the World Bank, demand for coal “tumbled” in 2020, “with the COVID-19 pandemic accelerating an existing trend of declining coal consumption in favor of natural gas and renewables.” Global coal consumption is estimated to have fallen by 7 percent, or over 500 million metric tons, from 2018 to 2020.

However, Russia’s invasion of Ukraine is having a short-term positive impact on coal demand and prices. European countries such as Germany and Italy are firing up previously mothballed coal plants to make up for sidelined natural gas supplies.

During his time in office, US President Donald Trump sparked hope for a coal industry revival, and pulled the country out of the Paris Agreement, citing his support of the coal sector as one of his reasons for doing so. He also lifted a freeze on new coal leases on public lands and revoked a rule that had limited coal-mining companies from dumping debris into local streams.

With President Joe Biden at the helm, the US rejoined the Paris Agreement. In his first days in office, Biden signed an executive order directing federal agencies to help generate alternative economic activity in regions traditionally dominated by the coal industry, such as Kentucky and West Virginia.

Moving forward, the Biden administration has set a lofty goal of using 100 percent renewable energy for electricity generation by 2035. Many US utilities have begun moving towards wind and solar power, as well as natural gas.

Does the coal industry have a future?

As mentioned, western nations are increasingly turning away from coal in favor of cleaner, more sustainable energy sources, which comes as a massive blow to the future of the global coal market.

But strong demand from China and India is likely to prolong the life of the industry. While China may have decreased its coal use in an effort to improve air quality, the Asian powerhouse is still one of the world’s fastest-growing major economies and is likely to remain the world’s top coal consumer for years to come.

As China is such a huge player in the coal market, the price of coal is tied to its domestic and foreign policies, as well as its economy. This has caused some volatility in the price of coking coal in particular.

Coal prices are expected to do well in the short term as the Russia-Ukraine war continues, and demand from China improves in the face of supply constraints. Research firm Trading Economics forecasts that coal prices are expected to trade at US$188.27 per metric ton in Q4 2024 compared to US$167.03 in Q4 2023.

Overall, it seems that although coal use is on the decline, the fuel will still hold a place in the global energy mix for years to come. While Europe and North America turn to other energy alternatives, demand from China and India will likely keep the coal market afloat into the future.

Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.

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