US coal plant closures might not lead to cheaper coal prices

Despite a record rate of US coal-fired power plant closures in 2018, domestic coal prices are unlikely to come under significant pressure, according to S&P Global Platts Analytics, partly because exports are currently providing an outlet for excess supply.

A lack of downside pressure will be welcomed by producers. Despite promises by US President Donald Trump to put coal miners back to work and his efforts to repeal Obama-era legislation seen as hostile to the industry, use of the fuel has continued to decline in the power sector.

“Domestic demand in the US coal market has been falling pretty consistently in 2018 but we haven’t seen that drive prices down,” said Joe Aldina, US coal analyst at S&P Global Platts Analytics.

Full-year 2018 thermal coal exports from the US are forecast to reach 55.21 million short tons, according to S&P Global Platts Analytics, up 16% on the 47.66 million st tons shipped abroad in 2017.

Alongside record exports, coal companies have become more disciplined, reining in capital spending and avoiding oversupplying the market to prevent a price slide, Aldina added.

Record retirements

Power generators in the US are set to retire a total of 14.3 GW of coal-fired power plant capacity in 2018, up from 7.0 GW of capacity retired in 2017, according to a recent analysis carried out by S&P Global Market Intelligence.

This year will mark the highest level of retirements since 2015, when the US power companies included in the analysis retired 14.8 GW of coal-fired capacity.

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Another 22.9 GW of plant retirements have already been announced or received regulatory approval for 2019 to 2024, marking 71.6 GW retired or scheduled to be retired between 2014 and 2024. The analysis of federal data shows about 245.6 GW of current operating coal plant capacity in the US and does not include more recent retirement announcements from Entergy Corp. and a city-owned plant in Michigan.

Even if prices remain supported, plant closures will have a knock-on effect for US producers. Of the 671.1 million st tons of coal they delivered to domestic electricity generators in 2017, 23.2% was taken by plants scheduled to retire within two decades.

In the short term, the coal sector – as well as the broader US electricity market – will be mindful of potential for asupply crunch if this winter turns out to be particularly cold. “There’s upside for coal demand this winter and stocks are running at multi-year lows,” said Dan Klein, head of coal analytics at S&P Global Platts Analytics.

During the coming years, coal-fired generation in the US will likely come under further pressure from falling costs of new-build wind and solar capacity, as well as battery storage, which is expected to play a growing role in the electricity sector as technology advances.