The Coal Market

The price of coal follows Ricardo’s theory more accurately than the price of oil, which we have seen is dependent on a multitude of other factors. The marginal cost weighs more heavily in setting the overall price of coal on the global commodity market. This is because the amount of taxes and subsidies are less important for coal than for oil. As well, the fact that coal resources are more scattered across the globe have lessened the volumes of coal traded globally and simplified to a certain extent the chain of cost and benefits’ allocation among the various stakeholders, leading to an overall price which reflects better the actual marginal cost of production. The cost of transportation is also important with regards to the cost of production. Therefore two distinct markets for coal coexist: the Atlantic market and the Pacific market. These two markets have distinct prices and different dynamics, and there are not many exchanges between them—trade between the two markets does not exceed 15% of the total volume supplied (© OECD/IEA, Coal Report 2012) (Table 3.3).

The price structure and the operating model also differ between the Atlantic and Pacific markets. In the Atlantic market, the “spot” market dominates, whereas in the Pacific market, the coal market features long-term contracts between producers and consumers. Large steel companies from Japan and Korea have so far managed to prevent the emergence of a “spot” market, privileging long-term and stable relationships with their suppliers.

The coal market is less developed and less speculative than the oil market. It is dominated by four main companies—Rio Tinto, Glencore, Amcoal and BHP Billiton—that, together, own more than 50% of the steam coal market. The coke market is dominated by BHP Billiton with more than 30% of market share. It is followed by Fording, which has less than 6% of the market (Furfari 2007). In the Atlantic market, Glencore, Amcoal and BHP Billiton dominate. Rio Tinto is essentially present in the Pacific market.

The coal market is finally less developed and less speculative than the oil market. Few large companies ensure the majority of the international trade. Now, the coal market remains in the end dominated by China which represents around 50% of the world market. This is as a result a much more fragmented market than it seems.

Table 3.3 Worldwide coal exchanges (© OECD/IEA, Coal Report 2012)

Coal (Mtoe)

Transit energy to

Transit energy from

Atlantic region

Pacific region

Total

Atlantic region

158

58

216

Russia

59

34

93

South Africa

29

42

71

Pacific region

45

602

647

Total

291

736

1027

 
Source
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