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Top US coal ports post double-digit volume declines in Q2'20 on COVID-19 impact

U.S. coal exports took a hit in the second quarter as the coronavirus pandemic crashed global demand and prices, with almost all of the top coal-exporting ports clocking double-digit drops in shipments.

Total U.S. coal exports for the three-month period plunged 41.7% to 13.5 million tonnes from 23.2 Mt year over year, according to data compiled by S&P Global Market Intelligence. Compared to the previous quarter, U.S. coal producers shipped 26.1% less of the commodity in the recent quarter.

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Most of the top destinations for U.S. coal exports saw a significant downturn in deliveries, and Morocco and Egypt bore the brunt with 83.4% and 72.5% decreases, respectively. Meanwhile, coal deliveries to Singapore ballooned by over 1,000%, while shipments to the Dominican Republic and Turkey jumped 176.5% and 101.8%, respectively.

The significant decline in U.S. coal shipments from April through June came as no surprise to rating agency Moody's.

In a July 15 note, Moody's said export prices have been weakening since the second half of 2018 and declined further following the pandemic, resulting in lower thermal coal export volumes and prices. A slowdown in the global steel industry also pulled down metallurgical coal prices and volumes, according to the rating agency.

"Lower international coal pricing makes exporting uneconomical for some coal mines in the United States," Benjamin Nelson, senior credit officer and lead coal analyst at Moody's, told S&P Global Market Intelligence. "Higher cost mines exit the export market more quickly — albeit sometimes at a lag because they are supported by contracts."

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Gregory Marmon, a Wood Mackenzie senior research analyst, cited a shift to liquefied natural gas, particularly in Europe, as a factor in low quarterly exports.

"Europe is currently awash [in] distressed LNG shipments, causing significant coal-to-gas switching," Marmon told Market Intelligence. "Russian coal exports to Europe are currently more competitive than U.S. exports."

Coal terminals in New Orleans and Laredo, Texas, accounted for the biggest drops in seaborne shipments in the second quarter. The New Orleans terminal booked an 80.2% year-over-year decrease to 558,000 tonnes of coal, while the Laredo terminal saw shipments drop 60.6% to 85,000 tonnes.

Meanwhile, terminals in Baltimore and San Francisco saw 54.7% and 53.2% year-over-year decreases in shipments, respectively. The rest of the ports with double-digit decreases saw shipments drop by between 27% and 46% year over year.

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The Seattle port had the only uptick among the top 10 ports, with exports increasing 13.9% year over year to 1.2 Mt in the second quarter.

For the third quarter, Wood Mackenzie expects a recovery in U.S. coal exports, particularly in the thermal coal segment.

Wood Mackenzie has estimated thermal coal exports to rebound to 7.4 Mt in the third quarter and modestly improve to 28.9 Mt in 2021, Marmon said. The agency also projected that metallurgical coal exports will increase to 8.6 Mt in the third quarter and hit 39.9 Mt in 2021.

The economic recovery from the coronavirus-induced slowdown is key for U.S. coal exports to return to their previous pace, according to Marmon.

Moody's, on the other hand, believes that an improvement in global pricing will lead to a meaningful recovery. This includes a thermal coal price of above $60 per tonne and metallurgical coal prices of above $125 per tonne for higher-quality metallurgical coals.

"Further improvement in pricing would be necessary for exports to get back to levels observed in recent years," Nelson said.

As the industry continues to suffer amid the pandemic, the decline in coal exports is expected to extend until the end of 2020.

The U.S. Energy Information Administration estimated a 32% slowdown in 2020 coal exports to 63 Mt as Atlantic ports face declining demand. In 2021, exports will rebound 7%, according to the EIA outlook. The agency also estimated the coal price will fall to $1.97/MMBtu in 2020 before increasing to $2.03/MMBtu in 2021.

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