Dynamic steam coal market integration: Evidence from rolling cointegration analysis

The aim of the paper is twofold: first, to assess the dynamics of the integration process of the international steam coal prices and, second, to investigate the changes in the roles of particular coal prices in this market in the light of changes in the structure of supply and demand. The analysis is based on steam coal prices set by the largest world exporters and importers on both the Atlantic and the Pacific markets. We use weekly data spanning from October 5, 2001 to March 28, 2014. The aim is achieved in two stages. During the first one, we use the rolling trace test to identify the integration of the steam coal market, and during the second one, we apply the rolling weak exogeneity test to determine the roles of the participants of the international steam coal market, namely price setters and price takers. Our main findings can be summarized in two observations. Firstly, the main world steam coal prices are integrated and during the period when freight costs are higher, the coal market integration is weaker, and when the costs are lower, the integration is stronger. Secondly, the role of particular coal prices is not stable in time. Generally, price setters appear in the market which covers greater shares in the physical coal trade. Although Indonesia and Russia have a great share in the global export, their prices remain price takers during the whole period. As a consequence, although Russia remains the largest coal exporter of the steam coal to the European market, it cannot dictate its prices in this market.