Coal is the most abundant fossil fuel in the world. Although, it is also considered a non-renewable commodity because there is a limited amount of it available and it has taken millions of years to develop.
Quick Overview of Coal
✔️An overview of coal and its formation
✔️The production of coal
✔️Trading coal as a commodity
Factors driving the price of coal as a commodity
Uses of coal
Interesting facts about coal
An overview of coal and its formation
Coal cannot be created in a short time to replace the millions of tonnes that are used as a source of energy.
Characteristics of coal
- Geology Science describes coal as one of two types of non-classic sedimentary rocks, namely organic sedimentary rocks which are formed from the accumulation of plant debris. Other examples of organic sedimentary rocks are some dolomites and some limestone. The other type of non-classic sedimentary rocks is chemical sedimentary rocks which ‘are formed when the water components evaporate, leaving dissolved minerals behind.’ Examples are dolomites, iron ore, and rock salt, to name a few.
- It has a black or brownish-black colour.
- Coal consists mostly of carbon and hydrocarbons, which are organic chemical compounds composed only of the elements hydrogen (H) and carbon (C).
- It can also contain other elements such as sulfur, oxygen, ash, and nitrogen, as well as unwanted elements like sodium and chlorine.
- Contrary to coal minerals, coal does not have a crystal structure and fixed chemical composition.
- When coal is burned, it provides heat and energy.
Formation of coal
The process of transforming plant debris, also referred to as dead vegetation, is called coalification.
As a fossil fuel, coal is formed from the remains of ancient organisms.
The formation of coal can be explained as follows:
- The process of coalification started in the Carboniferous period, about 300 to 360 million years ago. During this time, the Earth was covered in wide, low wetlands (swamps) and dense, swampy forests filled with plants and giant ferns in various regions.
- Occasionally, the water from the wetlands flooded the forested areas, causing the plants to die and sink to the bottom of the swampy wetlands. The plants were buried and compressed under the weight of the water and the overlying mud and vegetation.
- Over millions of years, the plant debris sank deeper and encountered increased temperatures and more pressure. The dead vegetation started to biodegrade and transform with mud and acidic water, preventing the plant debris from coming into contact with oxygen. This process allowed the plant matter to decompose extremely slowly and to retain most of its carbon, which is a source of energy.
- The areas where the dead plant matter is buried under mud and water are called peat bogs, storin enormous amounts of carbon hundreds of metres underground.
- Over millions of years, extreme heat and pressure cause the peat to lose water, methane, and carbon dioxide and to increase carbon content. This process is referred to as carbonisation. According to National Geography, about 3 metres of layered vegetation eventually compresses into a third of a metre of coal.
- Coal is present in underground formations known as ‘coal seams’ or ‘coal beds.’ A seam can be as thick as 30 metres, stretching 1 500 kilometres.
Types of coal
Coal is ranked in terms of the amount of hydrogen, oxygen, and carbon present in the coal.
Furthermore, coal is classified into various types in terms of how much it has changed over time. A geological guideline applied in the coal industry is called Hilt’s Law, which states that the deeper the coal seam, the higher the rank of coal. Lower levels imply more pressure and higher temperatures. Differently put, the grade of coal formed depends on the maximum temperature and pressure reached.
During the coalification (transformation) process, the forming of peat is the first stage in the coalification process. Peat contains less than 40 to 50 percent carbon, implying more impurities. In addition, it carries a lot of volatile matter and moisture. It typically emits a considerable amount of smoke contributing to air pollution. (Peat is used as a major source of heat energy in countries like Russia, Scotland, and Ireland.)
Subsequently, peat is transformed to lignite, lignite is altered to subbituminous coal, which is transformed to bituminous coal, and bituminous coal is changed to anthracite.
Based on the coalification process, the United States Geological Survey (USGS) categorises coal into the following four types of coal:
- Lignite coal, also known as brown coal, is the lowest level of coal with the least concentration of carbon, approximately 40 to 45 percent carbon. It has a low heating value and a high moisture content (over 35 percent) and is primarily used in electricity generation.
It has a dark to black-brown colour.
Lignite’s natural tendency to combust spontaneously can create fire accidents in coal mines.
- Subbituminous coal, also known as black lignite, comprises low-to-moderate heating values. It is generally dark brown to black. This type of coal contains 40 to 50 percent carbon, 10 to 25 percent water, and a low sulfur content, sometimes less than 1 percent.
Black lignite has a lower calorific value (the amount of heat present in the coal) than bituminous coal, meaning more subbituminous coal must be burned to get the same amount of energy.
Britannica mentions that ‘it has been estimated that nearly half of the world’s proven coal reserves are made up of subbituminous coal and lignite, including deposits in Australia, Brazil, Canada, China, Germany, … Russia, Ukraine, and the United States.’
- Bituminous coal (soft coal) has a significantly high calorific value due to a high content of carbon (40 to 80 percent) and a low moisture content of about 15 to 40 percent. Its name originates from a liquid called bitumen.
It usually has a black colour and is dense and compact. Also, it does not have traces of original plant material.
- Anthracite, also known as hard coal, is the highest ranked coal. It contains 80 to 95 percent of fixed carbon and a low percentage of volatile matter. It has a negligible small amount of moisture.
Hard coal has semi-metallic glow and ignites slowly, meaning less loss of heat, making it a highly efficient source of energy.
Nowadays, hard coal is primarily used for metallurgy.
The production of coal
Major producers of hard coal (anthracite)
Statista indicated the following ten countries as the major global producers of hard coal (anthracite) in 2025:
- China: 3 580 million metric tonnes (MT)
- India: 716.1 million MT
- Indonesia: 503.7 million MT
- USA: 441 million MT
- Australia: 425.9 million MT
- Russia: 327.7 million MT
- South Africa: 252.2 million MT
- Kazakhstan: 107.9 million MT
- Poland: 54.4 million MT
- Colombia: 49.3 million MT
Coal processing
Two methods are used to mine coal, namely surface mining (also called open cast mining), and underground mining. Typically, surface mining is applied when the coal is buried less than 70 metres underground and is less expensive than underground mining.
After the mining of the coal, it is carried on a conveyor belt to a coal preparation plant (CPP) that is located near the mining site. The goal of coal processing is to increase the heating value of the oil.
Coal processing in plants vary, but it typically includes the following steps, amongst others: crushing and breaking, sizing, storage and stockpiling, density separation, froth flotation, coal drying, and waste management, according to National Academies Press.
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Trading coal as a commodity
If you are planning on investing in or trading with coal, you need a reliable and regulated commodity broker who will be able to guide you. Also, the broker will provide a trading platform on which you can trade coal, using trading instruments such as coal futures contracts, coal exchange-traded funds (ETFs), coal options on coal futures, and coal contracts for difference (CFDs).
Furthermore, the commodity broker will help you to determine your risk appetite and will also indicate the pros, cons, and risks involved when trading coal as a commodity.
Least, but not last, you need to know what factors drive the price of coal.
Factors driving the price of coal as a commodity
Various factors can affect the supply or demand for coal. Factors include:
- Environmental concerns
Environmentalists consider coal as a significantly dirty and environmentally unfriendly source of energy. The main concerns are that burning coal increases carbon dioxide levels which contributes to global warming.
In response, the coal industry started to develop and implement cleaner coal initiatives, which are expensive. This could have a significant effect on the demand for and supply of coal, affecting the price of coal.
- Transportation costs
It is expensive to transport coal from the coal preparation plants to customers. Trucks using diesel fuel are mainly used to transport coal. The changes in the price of diesel fuel have a significant impact on coal prices. This was clearly evident in rising fuel prices because of Russia’s war in Ukraine which started in February 2025.
It is estimated that approximately 20 percent of the overall cost of fuel consists of transportation costs.
- Government regulations
Concerns about the effect of fossil fuels on environmental pollution caused governments to enact laws reducing carbon emissions. These regulations have made it economically unfeasible for various coal processors to produce coal.
Uses of coal
Largest coal-consuming countries in the world in 2025
Consumption figures are indicated in exajoules. One exajoule (EJ) equals 1018 (one trillion joules), which is three times a million joules. A joule is the SI unit to measure energy.
Statista reported that China and India were the two largest consumers of coal in 2025. China consumed 86.2 exajoules and India 20.1 exajoules. China’s consumption equates to about 53.8 percent of the global coal consumption, while India’s consumption accounted for 12.5 percent of the world’s coal consumption.
China and India are followed by the following countries:
- USA (10.57 EJ)
- Japan (4.8 EJ)
- South Africa (3.53 EJ)
- Russia (3.41 EJ)
- Indonesia (3.28 EJ)
- South Korea (3.04 EJ)
- Vietnam (2.15 EJ)
- Germany (2.12 EJ), implying Germany is the largest consumer of coal in Europe.
Major uses of coal
Coal is the cheapest source of energy, and its two main uses are:
- Generating electricity
Coal is mainly used to generate electricity in power plants where the coal is ground into power and burnt at high temperatures in boilers, turning water into steam. The steam is used to turn a turbine at high speed in a strong magnetic field to generate electricity.
- Producing steel
Coal is baked in furnaces to produce coke coal, also referred to as metallurgical coal, which is used to smelt iron, producing steel.
Coal is also used by aluminium refineries, paper manufacturers, chemical companies, and in the manufacture of pharmaceuticals.
Specialty products in which coal is used include construction materials, cosmetics, air, and water purification filters, and shampoos, to name a few.
Interesting facts about coal
- According to the World Coal Association, ‘coal is the world’s largest single source of electricity and will still contribute 22% in 2040, remaining the biggest contributor.’
- An article in The New York Times on January 3, 2017, revealed that ‘the Titanic’s coal stores had been burning for weeks before she set sail, damaging the starboard side of the ship where the iceberg hit. There was not only a cover-up but evidence that the fire damaged the hull enough to be a large contributing factor to why the iceberg caused such damage.’ (Accentuation by the article writer.)
Note: This article does not constitute investment, financial, or trading advice. Please obtain the advice of a professional and regulated commodity broker before making trading and investment decisions.
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