Second quarter export volumes were down 18.1% from the year-ago period, likely driven by low international thermal pricing and a recent decrease in metallurgical coal prices.
The U.S. exported about 23.2 million tonnes of coal during the recent period, which was about consistent with the 23.0 million tonnes shipped during the first three months of the year. U.S. producers shipped 24.6% less coal to India, the top destination for U.S. coal during the second quarter, than in the year-ago period, with exports totaling about 3.3 million tonnes during the recent period.
Industry experts expect thermal coal producers will feel the impacts of the low international pricing environment later this year and into 2020 as their contracts expire. While there has not been an industrywide reduction in output, one may be coming.
"For most U.S. producers, if you're looking strictly at the spot numbers at this point, you're below water in terms of netbacks at the mine," said Andy Blumenfeld, head of market analytics for Doyle Trading Consultants. "There are some producers that are still capable of clearing a margin, but that list is getting pretty thin at this point. So, if you've got a longwall producer with good rail logistics and good port throughput, you're probably barely making it at this point."
Coal producers took note of the decline in the export market on their second-quarter earnings calls, with several touting themselves as low-cost producers that will be better equipped to win over domestic market share. With fewer tons being exported and no major drawback in production, producers may need to prepare for stiffer competition and lower domestic pricing over the next few quarters.
Logistical conditions have improved in the central region of the U.S. A barge and railroad representative said this week that while they are still dealing with lingering effects from the storms and resulting flooding earlier this year, things should be about back to normal in the next month or so. BNSF Railway Co. is still rerouting a small portion of its traffic and service to portions of its network and has not yet returned to full capacity, while barge companies are working to navigate channels that were altered by sediment washed downstream by the flood.
Metallurgical coal pricing has also dropped recently, but experts said they think the market downturn is more cyclical than structural. While there are reasons to be optimistic, key global coking coal price indicators, such as Chinese blast furnace profitability, Chinese rebar prices and European steel prices, are sending negative signs about the sector, an analyst wrote this week.
The price decline may cause some companies to reconsider their proposed capacity expansion projects, but those decisions will largely hinge on whether there is a market for the coal.
"Most of these are relatively small operations that were always going to be very market-specific at the time that it came to actually starting production," said Matt Preston, Wood Mackenzie's research director of North America coal markets. "They're relatively small capital cost projects, so they're easier to turn on and off as the market dictates."
Despite the market decline, Ramaco Resources Inc. posted a year-over-year increase in net income in the second quarter. Executive Chairman Randall Atkins emphasized the company's conservative approach, noting it was "strategically designed to weather these types of market dislocations."
Contura Energy Inc., another major metallurgical coal producer, said this week that it is considering several options in case it receives court approval to purchase Powder River Basin thermal coal assets back from Blackjewel LLC, which acquired them from Contura just a few years ago. The company would like to find a buyer for the mines but may be forced to reclaim them instead.
National Coal Transportation Association: The association will hold its 45th Annual Business Meeting and Conference Sept. 9-11 in Baltimore.
National Coal Council: The council will have its annual fall meeting Sept. 11-12 in Washington, D.C.
Southern States Energy Board: The board is having its 59th Annual Meeting Sept. 23-25 in Louisville, Ky.