Coal Demand Hits Record 8.94 Billion Tonnes in 2026

Global coal demand is forecast to rise by 1.2% in 2026, reaching a record 8.94 billion tonnes. This upward revision reverses earlier expectations of a slight decline in consumption. The primary driver is the spike in natural gas prices caused by disruptions to liquefied natural gas shipments through the Strait of Hormuz.

The International Energy Agency notes that while the Middle East is not a major coal producer or consumer, the energy conflict has indirectly boosted coal markets. Higher gas costs are prompting countries with gas-fired power fleets to switch to coal-fired generation. This shift is expected to increase coal use in Europe, Japan, South Korea, and China, as documented in the IEA's Coal Mid Year Update 2026.

Gas price spikes drive coal substitution

The reduction in LNG flows through the Strait of Hormuz has created a price premium for natural gas. This economic pressure is compelling industrial and utility operators to utilize available coal capacity. In China, the effect extends beyond power generation, as higher oil prices make coal a more competitive feedstock for chemical production.

Weather patterns are also influencing the 2026 outlook. Expectations of a strong El Niño event are supporting coal demand in major Asian markets like India and Vietnam. Increased cooling requirements and lower hydropower generation due to reduced rainfall are further solidifying the need for thermal coal to maintain grid stability.

Chinese production cuts tighten global supply

Global coal production is expected to decline in 2026 after hitting a record in 2025, though output will remain above 9 billion tonnes for the third consecutive year. This contraction is largely driven by China, the world's largest producer, which has curtailed output following safety inspections initiated after a major mine accident in May.

The reduction in Chinese production has narrowed the gap between global supply and consumption. Consequently, the significant build-up of coal inventories accumulated in recent years is expected to ease. This tightening of supply conditions, combined with stronger import demand from Japan and Korea, is contributing to higher coal prices across international markets.

2027 outlook hinges on Hormuz stability

The trajectory for 2027 remains highly uncertain and is directly linked to developments in the Strait of Hormuz. If LNG flows recover and natural gas prices return to pre-conflict levels, global coal demand could decline as utilities revert to gas. Conversely, if the Strait remains largely closed to LNG shipments, coal demand could increase further, maintaining the record high levels seen in 2026.

Analysts from GN auto stocks/energy-stocks: natural gas demand suggest that the interplay between gas availability and coal prices will remain the central variable for energy trading strategies. The current market structure favors coal producers as the price differential between coal and gas widens due to geopolitical constraints.