INDUSTRY INSIGHTS

UNDERSTANDING COAL MINING

Coal is one of the most lucrative - and misunderstood - commodities. The average person seldom knows how we use coal is in every aspect of our lives; it's not just about providing power, but also about housing, the job market, and politics.

WHAT IS THE COAL MARKET?

The coal market can generally be divided into:

COAL PRODUCERS

The mining companies that extract and sell coal

TRADERS

The middlemen involved in the complex sale and exchange of coal

END-USERS

The people who use the coal. This ranges from power plants to construction firms, as coal is also needed to produce steel.

The coal market is large and lucrative...for those who have access to it. About eight billion tons of coal were produced and sold at the turn of the decade, and coal funders/traders saw returns upward of 5% per shipment. Barring major corporations and governments however, almost no one is able to trade coal. Even if you could afford to buy a few barge loads of coal (which would require millions in capital), the risk would be too great - if your customer ever turns down the shipment, you would not be able to negotiate a new buyer yourself (the process is complicated and expensive), and you would have nowhere to store your inventory. As such, the coal trade remains exclusive despite its profitability.

WHY IS COAL IN PERPETUAL DEMAND?

There are several reasons why coal is always in demand:

  • It is one of the most abundant - and affordable - fossil fuels
  • It is important to the construction industry
  • Coal is vital for many other products and by-products

Most fuels cost more than coal. The estimated cost of power generation, using petroleum, is about $13 per million British Thermal Units (BTU). Natural gas costs around $7 per million BTU, and coal is around $2.50 per million BTU.

This is a major consideration in fast developing countries such as India and China, where power consumption is growing faster than median household income. Even in a developed country like the United States, almost half the electricity generated is powered by coal due to cost reasons.

Renewable energy sources, such as solar and wind power, are doubtlessly preferable due to their lower environmental impact. However, they are expensive and may not be universally available - coal keeps energy prices affordable while we improve and develop the technology to make green energy more viable.

IT IS IMPORTANT TO THE CONSTRUCTION INDUSTRY

Coal contains carbon (in varying amounts based on grade). This carbon is required to produce steel, which is an alloy of iron and carbon. In particular, coking coal is important to steel making process - in 2010 alone, almost 721 million tonnes of coking coal was used for steel production.

In general, the supply and demand for steel is intertwined with the supply of coking coal. Since most countries are moving from rural to urban conditions, the demand for steel - and hence coal - is not likely to fall in the foreseeable future.

COAL IS VITAL FOR MANY OTHER PRODUCTS AND BY-PRODUCTS

Coal is also used for products like coal tar pitch, naphthalene, creosote oil, phenol, and benzene. These have a wide range of uses, from producing dyes to nylon.

In particular, coal is used to produce carbon fibre: this is a strong, lightweight material that is becoming ubiquitous; it is used in sports equipment, vehicle parts, and even musical instruments. Carbon fibre is replacing materials such as wood and aluminium in many consumer products, and the demand is set to grow.

For more information on coal facts, please visit www.worldcoal.org/basic-coal-facts

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