Global coal demand is set to reach a record high in 2026 as the conflict in the Middle East disrupts natural gas supplies and pushes countries towards alternative energy sources, according to the International Energy Agency (IEA).
In its mid-year report, the Agency now expects global coal consumption to rise 1.2% this year, to a record 8.94 billion tonnes, reversing its previous forecast for a slight decline.
The shift largely reflects the impact of the Middle East conflict and the blockade of the Strait of Hormuz, which has disrupted global liquefied natural gas (LNG) flows and driven up natural gas prices.
As a result, the IEA expects higher coal consumption across Europe, Japan, Korea, China, and other markets than previously forecast as countries turn to coal for power generation.
In China, high oil prices are also supporting greater coal use in the production of chemical products, while a particularly strong El Niño weather pattern is expected to boost coal demand in several major Asian markets.
Demand already at record levels
Global coal consumption reached a record 8.84 billion tonnes in 2025, according to the IEA.
That came despite coal-fired power generation declining in both China and India for the first time in half a century.
Those declines were offset by stronger consumption elsewhere. In the US, rising electricity demand, higher natural gas prices, and supportive policies drove an increase in coal use, interrupting the broader downward trend seen over the past two decades.
Demand also increased from coal-intensive industries, including nickel production in Indonesia and China’s coal-to-chemicals sector.
Coal production set to decline
On the supply side, global coal production matched its record high of 9.1 billion tonnes in 2025, previously set in 2024.
China, which accounts for more than half of global coal output, increased production by 1.4% last year. That brought the country’s cumulative increase in production since 2020 to more than 1 billion tonnes.
US output also rebounded as domestic demand strengthened, while production in India and Australia remained broadly unchanged from 2024. Russia and Indonesia recorded modest declines.
The picture is expected to change this year, with the IEA forecasting global coal production to fall by around 2% in 2026, although output is still expected to remain above 9 billion tonnes for a third consecutive year.
With the gap between production and consumption narrowing, the Agency says the recent period of large-scale global stockpiling has ended for now.
Middle East war supports coal prices
The Middle East conflict has also provided support for coal prices in 2026, with higher natural gas prices making coal more competitive for power generation.
Before the latest rally, the IEA said coal prices had fallen to levels close to what producers need to cover the cost of bringing additional supply to market. It suggested the subsequent recovery was a normal market adjustment rather than a return to the extreme price conditions seen during the global energy crisis.
By February, Newcastle free-on-board (FOB) thermal coal had reached US$115 ($159) a tonne, 7% above its December level.
Prices received further support from export restrictions and regulatory uncertainty in Indonesia, particularly for lower-calorific coal. Safety inspections following a mining accident in China in May also supported prices, particularly for coking coal.
Meanwhile, supply disruptions at the Cerrejón mine in Colombia tightened availability in the Atlantic market.
Newcastle thermal coal prices subsequently averaged US$139 per tonne in June before easing to US$131 in August. While sharply higher than the depressed levels seen in late 2025, prices remain well below the 2022 energy crisis peak of more than US$400 a tonne.
2027 outlook hinges on LNG flows
Looking ahead, the IEA says the direction of the coal market in 2027 will depend heavily on developments in the Middle East and the recovery of LNG flows through the Strait of Hormuz.
If LNG flows recover, global coal production is forecast to increase by around 0.3% next year, partly reflecting a rebound in Chinese output following this year’s expected decline.
Production growth could be stronger if LNG supplies remain constrained, as elevated natural gas prices would continue to encourage greater coal use, the IEA predicts.
Conversely, a recovery in LNG flows would reduce demand for internationally traded coal and put pressure on production among major exporters, it adds.
Government policies aimed at expanding domestic coal production are nevertheless expected to support further supply growth in some countries, including India and Kazakhstan, the IEA concludes.
Write to Jackson Chen at Mining.com.au
Image: PICRYL
