U.S. thermal coal prices were mixed in the week ended May 25, with rail-delivered Central Appalachian coal prices heading higher and Powder River Basin coal prices easing lower.
As the NYMEX-spec product held flat, the 12,500 Btu/lb, less-than-1% sulfur product saw the largest gains along the front part of the forward curve, while the 8,800 Btu/lb PRB product saw modestly steeper declines beyond the front month.
During 2016, producers aggressively cut coal production in the face of market headwinds, including low natural gas prices and elevated coal stockpiles. Weakness in international coal markets added to domestic producers' woes as U.S. coal that would otherwise have been shipped overseas was absorbed into the nation's supply.
Over the summer and fall, the natural gas market moved higher as natural gas storage inventories increased at a slower-than-average rate. The market had approached $4/MMBtu, but a mild winter brought the market lower. Through May 25, prompt-month natural gas futures are down 4.3% year to date but up 62.2% year over year to $3.184/MMBtu.
Analysts say stockpiles have been keeping a lid on the domestic thermal coal market and as utilities work through them, the domestic thermal market will become more volatile. Through the end of March, power-sector coal stockpiles were 0.1% above the 10-year average at 163.9 million tons, according to the U.S. Energy Information Administration, which estimated days of burn at 13.5% above and 22.2% above the five-year average for bituminous and sub-bituminous coal, respectively.
Meanwhile, prompt-month API2 swap futures are down 13.3% year to date but up 54.1% year over year at $74.30/tonne.
The EIA has cited weak global fundamentals and low international coal prices as limiting U.S. coal exports, as "lower mining costs, cheaper transportation costs and favorable exchange rates continue to provide an advantage to mines in other major coal-exporting countries." In its latest outlook, the agency boosted its expectations for 2017 U.S. coal exports by 4.9% to 60.3 million tons. That figure is up 5% versus 2016, but the EIA expects 2018 exports to slide 6% year over year.
As of May 25, the Australian dollar is 3.0% stronger year to date and 3.3% stronger year over year relative to the U.S. dollar, while the Colombian peso is 5.1% stronger relative to the U.S. dollar year over year, according to SNL Energy data.
Amid weak U.S. coal exports, EIA estimates show that coal-fired generation fell behind gas-fired generation as the nation's top provider of electricity for the first time annually in 2016, and the EIA expects that trend to continue in 2017. While U.S. generation averages 11.0 million MWh/d, the EIA expects that natural gas will provide 31.6% of the nation's electricity in 2017 to coal's share of 30.8%. The government expects that power-sector coal consumption will total 676 million tons in 2017 before climbing to 688 million tons in 2018.
Longer-term projections for domestic coal consumption and production are bleak and highlight the natural gas market's and government policy's influence in both the short run and the long run.
But so far, government estimates show coal production has increased year over year, with the EIA estimating coal production at 14.3 million tons for the week that ended May 20. That figure is up 6.3% versus the prior week and up 20.3% from the comparable week in 2016, bringing year-to-date production 17.3% higher year over year to 299.3 million tons.
Meanwhile, the latest data from the EIA shows mixed results for U.S. power-sector coal demand and stockpiles. Coal generation climbed significantly year over year in March, allowing for a below-average stockpile build in spite of increased coal production. But after three consecutive months of coal dominance, natural gas provided the largest share of the nation's electricity over the same period.
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