Source: Institute for Energy Economics and Financial Analysis
The price on thermal coal sold into Pacific markets recently dropped below $75/t, signifying headwinds in a region home to several of the recent top growth markets for U.S. coal producers.
While pricing on steam coal sold into Europe declined in the first quarter and has remained low, Asian thermal coal prices have started to drop as well due to high inventories, weaker Chinese demand for coal imports and lower natural gas prices, analysts told S&P Global Market Intelligence. Should Asian steam coal prices remain low, it could affect U.S. miners’ ability to sell into the Pacific market as contracts roll off.
Gregory Marmon, a Wood Mackenzie senior research analyst, said the Newcastle prompt month pricing, which tracks the price on thermal coal sold from Australia’s Port of Newcastle, is at its lowest level since June 2017. He projects pricing will remain low for about the next six months, which means U.S. producers will struggle to compete in the Asian markets until winter demand heats up.
U.S. coal exports to Europe have been “out of the money for some time,” Marmon said, and low Asian pricing will affect Powder River Basin shipments out of the West Coast and any Gulf Coast exports that move through the Panama Canal. Lower-cost miners in Indonesia, Colombia and South Africa, though still affected by the drop in pricing, will out-compete the U.S.
“So, this is going to further limit U.S. exports,” he said.
Domestic miners’ contracts in the region will be rolling off this month and next, resulting in “significant drops in exports,” Marmon said. Wood Mackenzie expects U.S. coal exporters to average about 1.2 million tonnes less per month in the second half of the year from the first six months.