Letter 517, January 2026
Executive Summary
In the long run, decarbonisation may create a structural coal trade deficit. The plunge last year gave rise to speculation that it’s undergoing a fast adjustment, but this may have been caused by one-off factors and the speed may slow in 2026-30.
The speed of convergence to the new equilibrium depends on fuel prices that shape the pace of coal substitution, obstacles in the transition arising from adverse policies to decarbonisation, the integration of new renewable capacity into power systems, weather conditions that disrupt the balance of renewables in electricity generation, the ability to attract private capital to replace old furnaces, US interest rates (the borrowing cost) and the dollar.
This Letter sheds light on those factors, and examines the complex layers to bring about two scenarios of convergence, one for a fast adjustment described as a tectonic break, and the other a slow adjustment. The uncertainty surrounding decarbonisation has implications for the dry market, which may cause a bifurcation among vessel categories.