The Global Steam Coal Market and Supply Curve

Abstract

The modern steam coal trade is only about three decades old. It developed in the late 1970 s after a decade of oil price-related turmoil and financial market difficulties. In order to understand the coal market one needs to understand the global political and policy context. In the chapter the author considers the economic implications of climate change mitigation efforts such as the Kyoto Protocol and the EU ETS. He goes on to reveal and analyze recent trends in the steam coal market, such as consolidation of production, volatility in the freight sector, and changes in contract term behavior. He also looks at the development of coal derivatives and likely future scenarios of coal trading. In doing so, he outlines the factors limiting (and supporting) the commoditization of coal. The author concludes this chapter with the development of a bottom-up FOB cost curve for steam coal supply and with an introduction to WorldCoal, a nonlinear model developed to qualitatively analyze the global steam coal trade market. A more detailed analysis of this model is given in Appendix E.