Modeling and Analysis of the International Steam Coal Trade

Abstract

Coal continues to play an important role in the global energy sector and with the increase in international trade a global market for steam coal has developed. We investigate market structure and recent price developments with a numerical modeling approach and develop two partial equilibrium models, a quantity based model and a model additionally incorporating energy values. We compare two possible market structure scenarios for the years 2005 and 2006: perfect competition and Cournot competition. Our chief finding is that, for both models, the simulation of perfect competition better fits the observed real market flows and prices. However, we also note that spatial price discrimination and a time lag in the pricing-in of capacity constraints are additional mechanisms in the market. From a modeling perspective, relying only on coal quantities leads to distortions in estimated trade flows, suggesting that an energy-based model is superior.