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.