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OTC market: Coal prices flatline as holidays thin volume

With trading activity quieting considerably through the Christmas holiday and leading up to the New Year's holiday, over-the-counter coal prices held flat across most of the country in the week ended Dec. 30.

Easing just 0.4%, the biggest week-on-week price move was seen for the prompt-month rail-delivered Central Appalachian coal product, which saw prices ease to $57/ton, or about $1 above the prompt-month NYMEX-spec price.

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Throughout 2016, producers aggressively cut coal production amid 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 be shipped overseas was absorbed into the nation's supply.

Over the summer and fall, the natural gas market moved higher as gas storage inventories increased at a lower-than-average rate. Through Dec. 29, prompt-month natural gas futures are up 62.9% year-to-date and 62.7% year over year to $3.802/MMBtu. As natural gas prices have weakened, coal stockpiles have grown.

Analysts say stockpiles have kept a lid on the domestic thermal coal market, and that as utilities work through them, the domestic thermal market will become more volatile. Through the end of October, power-sector coal stockpiles were just 0.6% above the 10-year average at 163.5 million tons, according to the U.S. Energy Information Administration, which estimated days of burn at 7.5% above and 37.2% above the five-year average for bituminous and subbituminous coal, respectively.

Meanwhile, prompt-month API2 swap futures are up 89.6% year-to-date and 88.3% year over year at $90.55/tonne.

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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 government agency dropped its expectations for 2016 U.S. coal exports by 2% to 56.8 million tons. That figure is down 23.3% versus 2015, but the government expects 2017 exports to climb 3% to 58.5 million tons.

Amid a weak U.S. coal export outlook, the EIA expects coal-fired generation will fall behind gas-fired generation as the nation's top provider of electricity for the first time annually in 2016, a trend the government agency expects will continue in 2017. Amid stronger natural gas prices, the U.S. government raised its short-term outlook for power-sector coal demand to 701 million tons in 2017, up 0.7% versus the prior outlook.

Longer-term projections have U.S. coal consumption and production sliding further, regardless of whether carbon emissions limits are enacted. Amid falling demand and exports, higher-cost production has fallen off. The government expects U.S. coal production to fall to the lowest level since 1978.

EIA coal production estimates show that all coal-producing regions are being hit by the weak market. During the week ended Dec. 24, domestic coal production totaled 15.2 million tons, down 27.7% versus the year-ago week, with the Appalachian region seeing a 34.1% gain. Year-to-date through Dec. 24, total domestic coal production is down 17.0% to 735.4 million tons.

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Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power, natural gas and coal index prices, as well as forwards and futures, visit our Commodities Pages.