U.S. coal exports rose 14.8% in the first quarter compared to the prior-year period, driven by sharply increased demand from India.
India bought 5.7 million tonnes of coal from the U.S. in the first quarter, up 76.3% compared to the same period a year ago, according to an S&P Global Market Intelligence analysis. Brazil, Croatia, Egypt, Japan, Mexico, Morocco, Poland and South Korea also significantly increased quarterly imports of U.S. coal compared to a year ago. The overall increase was tempered somewhat by significant declines in coal trade between the U.S. and the Netherlands, the U.K. and Germany during the same period.
Consol Energy Inc. Chief Commercial Officer Jim McCaffrey said during an industry conference in May that when he visited India in February, he had been "blown away by the opportunity" for U.S. coal.
"People would want to do deals nearly on the spot, or at least lay out deals, and it was certainly astonishing to me," McCaffrey said. "We're not going to abandon the domestic market, but we are going to go where our netback and returns to shareholders are best."
India is expected to be the largest single driver of seaborne demand for metallurgical-grade coal used to make steel in the coming years, Aurizon Holdings Ltd. Managing Director and CEO Andrew Harding said on a recent investor day call. Aurizon is a railroad service provider that ships coal through Australia. In early June, Teck Resources Ltd. President and CEO Donald Lindsay said India will likely pass China in terms of his company's coal sales, something "no one would have expected five years ago."
The country may also become a major customer for thermal coal producers. Spencer Dale, a group chief economist with BP PLC, said India accounted for about three-quarters of the growth in coal consumption globally in 2017.
"I was in India recently and was discussing with various policymakers and officials about how the power mix may evolve, and they expect to see very rapid growth in power demand over the next 10, 15 years as electricity becomes increasingly accessible to more and more of their citizens and their citizens' wealth and prosperity increases," Dale said in June. "Huge growth in renewable energy, particularly solar energy, there is extraordinarily exciting, but that's only going to provide a relatively small proportion of ... the energy they need."
Booming export markets thanks to a relatively strong global economy have cushioned U.S. companies from oversupply in the domestic market as coal plant retirements continue to chip away at the customer base at home.
"The United States has long been a swing supplier during times of high pricing, and is certainly participating now even as rail service has been challenging," MKM Partners Executive Director Daniel Scott wrote in a July 9 note. "Exports don't appear to be slowing at all in [the second half] and we are even hearing of 2019 tonnage being booked. Being able to put tonnage overseas should accelerate the rebalancing of supply and demand domestically and allow another avenue to profitability outside of coking coal exports alone."
Total U.S. coal exports in the first quarter declined slightly from the previous quarter, falling from 35.9 million tons to 35.0 million.