Over the last 25 years, the ten largest mining companies have seen a cumulative growth in productivity of 1%: a stark contrast to the 15% to 25% increase enjoyed by the manufacturing and business services sector. In a capital-intensive environment with conservative management, characteristic of many heavy industries, technological innovation tends to be perceived with suspicion.
Still, the paradigm shift is near. As the existing basins get depleted and industry-wide declining capital expenditures limit the exploration and development of new coalfields, companies are unable to expand their upstream operations. The only remaining option to boost their EBITDA is to increase profitability margins by cutting costs.
Technology is the solution: McKinsey reports that fuel consumption in hauling — one of the industry’s dominating operational costs — can be reduced by as much as 15% by introducing autonomous trucks and leveraging AI to analyze tire pressure. At the same time, implementing the Industrial Internet of Things in combination with centralized data repositories and machine learning can improve predictive maintenance and the efficiency of extraction processes.
The trading bottleneck
All that said, technological advancements can be rendered worthless if the efficiency isn’t translated to the final consumer. While digital twins and value-chain optimization techniques can increase profitability for the extracting business, the traditional coal trading landscape still presents a significant bottleneck. Despite the coal trading pools' total EBIT growing more than two-fold since 2019, the industry is still dominated by several prominent players that use conventional methods of coal trading.
These methods include manual request processing, paper-based documentation, and maintaining a large balance sheet to offset a significant counterparty risk that arises from overexposure to one producer and a few customers. The main inefficiencies, however, lie in the field of logistics practices.
An atavism from the era of no supply-chain disruptions, they still adhere to the just-in-time strategy and Long Term Contracts. Lack of adaptation to the current unstable geopolitical and increasingly regionalized environment results in shipment errors, delays, suboptimal use of warehouse capacity, and a general inability to cater to spot orders by smaller customers.
Still, the market conditions call for a change. Large producers have started to realize the unextracted value from their global logistics, and inventories and have moved from D2C (Direct-to-Consumer) sales to trading. Consumers, urged by recent extreme volatility , are turning towards spot markets to avoid the need to hedge for costly forward contracts. All of these factors create a virtuous circle that shapes the future of coal trading: more competitive, efficient, and technologically advanced.
The rise of digital coal trading
As the value proposition of global commodity traders shifts toward the revaluation of goodwill, maintaining close contact with regional producers and local supply networks becomes an integral part of trading. And here, digital coal trading is unparalleled. Says Adam Kokorkhoev, FTOREX Co-Founder: “FTOREX partners with the largest coal mining companies that use a variety of digital technologies to optimize processes in coal trading and logistics.
Such technologies include warehouse automation systems that improve inventory management, GPS systems that facilitate cargo tracking, cloud technologies that provide quick and easy information exchange between companies and manage the entire supply chain, production process management systems, etc.”
Besides greater efficiency and transparency through real-time pricing information, supply chain visibility, and auditability of transactions (for example, look at the partnership between MineHub and IBM), another benefit of technological innovation traders can implement is the assessment of uncertainty. Using digital-twin simulations, real-time supply chain monitoring, and AI analytics-based forecasting can help to predict, react, and eliminate logistical bottlenecks and other operational problems.
A long and winding road to walk
Nevertheless, the transition period can take a long time. Just as in the mining industry, the coal trading community could be more active in adopting innovation: progress is spearheaded by only a handful of players, and persistent underinvestment limits the prospects of broader adoption.
Says FTOREX’s Adam Kokorkhoev: “Currently, the main roadblocks for the digitization of coal trading are outdated equipment and limited access to data. Modernization of capital will be an important step for the integration of digital technologies, monitoring systems, and other Industry 4.0 practices. As the equipment gets updated and communication networks are installed, data collection and processing capabilities will improve, leading to higher efficiency and greater transparency.”
Since the market conditions favor the inevitable evolution of coal trading, following the example of its upstream counterparties, we may see a fracturing of what was once an industry dominated by just a couple of large companies. Still, the digital transformation and adoption of innovations widely depend on proactive steps, such as regulatory assistance and increased investment availability.
What I’m sure of is that such advancement will benefit everyone: starting from higher profit margins for traders and lower prices for consumers and finishing with enhanced sustainability practices — ranging from transportation optimization to waste reduction. The future of coal is here.
