Coal: fossil fuel is burning bright despite renewable energy drive

Coal consumption refuses to disappear as quickly as climate change activists would like. As of 2019, coal-fired generation provided 36 per cent of the world’s electricity, according to the International Energy Agency. It forecasts that this figure needs to fall by more than half in 2030 to meet carbon emission targets on global warming. Good luck with that. Steady demand in Asia and falling coal investment suggest that prices, up by half this year, have further to rise.

Commodity specialists would call this simple economics. Say it to portfolio managers, however, and pained expressions will follow. Most prefer not to discuss owning shares of coal miners. Never mind that prices of the leading producers have run up sharply in recent months. Shares of China Coal Energy, one of the world’s largest, have doubled in price year to date. Anglo-American’s coal spin-off Thungela has climbed a fifth since listing in Johannesburg and London earlier this month.

Blame China for breathing life into a moribund industry. Yes, the country has made strenuous efforts to expand its renewable energy use. It can boast the world’s largest electric vehicle market and produces the most solar energy. But its insatiable appetite for energy causes complications for Beijing policymakers. Coal still fires 55 per cent of electricity generation. On current trends, that proportion might fall to a third in another decade.

Since 1988, China has led the world in coal consumption. Together with India, it accounts for almost two-thirds of demand. Beijing has given its domestic miners mixed signals. At various times, it has restricted supply and later demanded that output be increased to meet local demand.

Despite producing 4bn tonnes annually, China’s net coal imports have nearly doubled over the past decade to 5 per cent of the total. Meanwhile, capital spending for the top global 13 miners has halved since 2011 to about $13bn according to Liberum. This at a time when few will lend to the industry.

Do not bury thermal coal just yet. With little forecast expansion of supply, even slowing demand will support its price.