Competitiveness of coal - the evolution of price, CS/05

Author(s): Graham Broadbent

Ref: CS/05
ISBN: 92-9029-321-9
Published Date: 01/03/1999
No. of Tables: 6
No. of Figures: 15
No. of Pages: 18

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This report explains how the international coal trade links the global market, it looks at the trends in coal costs and it discusses how the coal market price may be expected to behave in relation to gas. Price reflects the value of a commodity when supply and demand are in balance. Of course, prices are changing constantly. Unlike other energy commodity markets (notably oil), there is no single representative coal price since coal is not a single commodity. Selected price trends can be highly misleading unless allowance is made for very considerable quality differentials and supply conditions which are valued very differently by buyers according to the end-use. Nevertheless, the underlying market mechanisms are straightforward and give a good indication of likely future trends. This report addresses the mechanisms rather than trying to give any specific forecast of the outcome. Allowance must also be made for political influences on the market. The regulations for emissions such as sulphur dioxide, nitrogen oxides and particulates have become progressively tighter. Future trends in fossil fuel costs may also be affected by government policies designed to achieve reductions in carbon dioxide emissions from power generation. Where governments try to value so-called external costs (that is, costs not valued by the market, in this case adverse climate effects of carbon dioxide emissions), costs of all fossil fuels could be expected to rise in proportion to their carbon content and coal would be the most adversely affected. Analysing the outcome is complex and any conclusion drawn would be highly speculative since there is no widespread agreement on concrete measures to achieve agreed carbon dioxide targets. Climate response policies introduce a considerable level of uncertainty into analysis of the future of coal markets. Uncertainty about the outcome may already be having some impact, for example, by both coal buyers and producers anticipating future government policies in their investment planning. The evidence of this is slender, since coal supply capacity continues to rise despite falling prices and inconclusive international negotiations on climate issues.

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