MW Steel, not energy, is key to coal's future growth. Here's why.

By Myra P. Saefong

Thermal coal may retire for good in the U.S., but metallurgical coal could see 'healthy' growth, says analyst

President Donald Trump's "America First" agenda seeks to promote coal and other fossil fuels as a cheap energy source and to help bring old-school manufacturing back to the U.S.

The hitch for investors has been that opportunities to wager on any new "coal rush" have become fewer and may ultimately be fleeting - but not if you consider the commodity's somewhat overlooked role in industrial applications, particularly in the production of steel.

Coal has uses outside of power generation, said Omar Sheikh, chief executive officer of energy-solutions provider New York Energy LLC. "Unless the world and society as a whole has built everything it is going to build, coal is still required for steelmaking and will be for the next 20 or so years."

Metallurgical coal, which is also known as met coal or coking coal, is essential to steel production - and steel plays an integral part in the economy, from construction and infrastructure to transportation and technology.

In a report last year, market-research firm Straits Research estimated the size of the global metallurgical coal market at $15 billion in 2024 and said it would grow to $18.4 billion by 2032, registering a compound annual growth rate of 2.6% over that period.

Toyin Are, founder of Apex Commodity Markets, told MarketWatch that Trump's "onshoring policy," which encourages the return of manufacturing and supply chains back to the U.S., will lead to increased steel demand.

That steel will be "largely produced via blast furnaces, which in turn will require met coal - and the most logical and best sources are domestic," said Are.

Executive action

In an executive order dated April 8, Trump said the U.S. needs to increase domestic energy production, including coal, in part to secure the nation's economic prosperity and national security.

"The rhetoric and potential for deregulation could boost investor sentiment and coal-producer valuations, and stabilize or even slightly increase U.S. coal demand for power generation and steelmaking," said Tim Rotolo, CEO at Range Fund Holdings.

Rotolo said his company launched the Range Global Coal Index exchange-traded fund COAL last year because investors "deserve access to a market that remains critical to global infrastructure." The ETF offers exposure to a global mix of both met- and thermal-coal producers, including Warrior Met Coal Inc. $(HCC)$ and Yancoal Australia Ltd. (AU:YAL).

The coal ETF, with about $15 million in assets under management, traded down 19.5% this year as of May 9, according to FactSet data. Net inflows over the past year were at about $11.4 million, with about half of that coming just in the last three months, said Rotolo.

The recent inflow surge coincides with renewed attention on coal after Trump's executive order in April and a broader rise in coal-stock prices, he said. "There seems to be some real momentum building among investors who are betting on a policy-driven coal comeback."

Global coal use, meanwhile, rose to an estimated record high last year at 8.77 billion metric tons, according to the International Energy Agency. Demand for the commodity is increasing in some emerging economies where electricity demand is rising sharply along with economic and population growth, the IEA said.

But thermal coal is being phased out in much of the West thanks to cheaper renewables and natural gas, noted Rotolo. "It is becoming increasingly clear that the long-term outlook for coal is centered more on met coal ... rather than thermal coal," he said.

'It is becoming increasingly clear that the long-term outlook for coal is centered more on met coal ... rather than thermal coal.'Tim Rotolo, Range Fund Holdings

Met coal is tied to global steel production, which is still growing as countries like India and those in Southeast Asia work on building infrastructure, manufacturing more and growing their economies, said Rotolo.

Peabody Energy Corp. (BTU), the largest coal miner in the U.S., is among the coal ETF's holdings. In November of last year, the company acquired steelmaking-coal assets from Anglo American Plc (UK:AAL) (NGLOY), including four metallurgical coal mines.

"The world continues to move toward coal, not away from it, as witnessed by the record global coal use in 2024," Jim Grech, president and CEO of Peabody, told MarketWatch.

U.S. demand for coal-fueled electricity has increased more than 20% over prior-year levels through the first quarter, Grech said, and Peabody anticipates growth in domestic coal demand this year.

Shares of Peabody have fallen by 27% so far this year as of May 13 - but they've climbed nearly 24% this month to date.

Challenges

As an energy source, analysts were pessimistic on the outlook for coal.

Trump offered a "lifeline" to coal with his executive order, Frank Holmes, CEO and chief investment officer at U.S. Global Investors, told MarketWatch. However, it was "not necessarily a long-term fix" for the industry.

The U.S. and other countries had been working toward a phaseout of coal power plants, to help meet the goal of the Paris Agreement to reduce greenhouse-gas emissions and limit global warming to well below 2 degrees Celsius above preindustrial levels. Trump withdrew from the treaty during his first term as president, President Joe Biden rejoined the pact in 2021, and Trump then withdrew from it when he became president again earlier this year.

Even so, U.S. electricity generators this year plan to retire 12.3 gigawatts of capacity, a 65% increase in retirements compared with 2024 - with coal generating capacity accounting for the largest share of those planned capacity retirements, at 66%, according to a report from Energy Information Administration published in late February.

In the modern energy economy, coal faces stiff headwinds, Holmes noted, even with strong federal support from the Trump administration.

Year to date, thermal coal traded on the New York Mercantile Exchange (MTFC00), the benchmark for coal imported to northwest Europe, had lost 16%, after settling at $96.05 per metric ton on May 9, according to FactSet data. The futures contracts reflect the cost of coal delivered to the northwestern European ports of Amsterdam, Rotterdam and Antwerp in the Netherlands.

International coal-market prices have declined in the last year, predominately due to oversupplied markets around the world, said Alison Ellmann, head of business development at online physical coal-trading platform GlobalCOAL.

Near term, the supply side for coal "remains healthy and stock levels take time to be depleted," said Ellman. This is likely to continue to "limit price upside throughout the balance of the year and possibly into 2026."

Global coal production for 2024 was expected to top 9 billion metric tons for the first time on record, according to the IEA. That outpaces forecasted global demand of 8.77 billion metric tons.

Terminal decline?

Global coal demand may have already peaked in the most advanced economies and is forecast to keep decreasing through 2027, according to the IEA. Global demand is expected to hold near the estimated 2024 level through 2027, the IEA said.

Coal consumption in China - which consumes 30% more coal than the rest of the world combined - is expected to level off due to "massive expansion" of renewables, it added.

Coal generation hit a record high in 2024 largely due to growth in emerging markets, said Holmes of U.S. Global Investors - but even in China and India, "ambitious plans are underway to increase cleaner energy," he noted. China led the world in solar additions last year, while India is scaling up renewables, he said.

New York Energy's Sheikh said that even if Trump were to remove all regulations surrounding thermal coal, the cost to mine, ship and utilize it would still be more expensive than natural gas.

'In our opinion, [it's] only a matter of time before thermal coal is retired for good domestically.'Omar Sheikh, New York Energy LLC

At this point for utilities, it is purely a financial and business decision - and "in our opinion, [it's] only a matter of time before thermal coal is retired for good domestically," said Sheikh, adding that thermal coal will "remain in terminal decline."

Holmes came to a similar conclusion for coal used for power generation. In the long run, "I think the writing is on the wall," he said. "The global transition to cleaner, cheaper energy is well underway. Investors who want to stay ahead of the curve should follow the data and the money."

Metallurgical coal, on the other hand, may see "healthy" or "normal" growth in price and demand during the next economic growth cycle, said Sheikh. "Rebuilding war-torn areas could also provide vertical movement if ceasefires and/or peace [deals] are eventually struck."

-Myra P. Saefong

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May 14, 2025 11:13 ET (15:13 GMT)

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