Coal prices were mixed in the week ended April 6, with longer dated contracts barely budging but moving higher on the week.
As the nearby month rolled forward, prompt-month prices for Central Appalachian and Powder River Basin products moved in opposite directions with the 12,500 Btu/lb, less-than-1% sulfur product falling 2.2% on the week and the 8,800 Btu/lb PRB product climbing 3.6% over the same period. For delivery beyond May, the PRB product showed the most strength but climbed only 0.8% and 0.6%, respectively, for delivery in the third quarter and delivery in 2018.
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 had 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 has brought the market lower. Through April 6, prompt-month natural gas futures are up 0.1% year to date and up 65.1% year over year to $3.331/MMBtu.
Analysts say stockpiles have been keeping 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 January, power-sector coal stockpiles were 2.6% below the 10-year average at 157.4 million tons, according to the U.S. Energy Information Administration, which estimated days of burn at 4.9% above and 30.3% above the five-year average for bituminous and sub-bituminous coal, respectively.
Meanwhile, prompt-month API2 swap futures are down 9.2% year to date but up 76.5% year over year at $77.75/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 government agency boosted its expectations for 2017 U.S. coal exports by 3.9% to 53.1 million tons. That figure is down 11.9% versus 2016, but the government expects 2018 exports to slip another 4% to 50.9 million tons.
As of April 6, the Australian dollar is 4.2% stronger year to date and 0.5% stronger year over year relative to the U.S. dollar, while the Colombian peso is 8.4% stronger relative to the U.S. dollar year over year, according to SNL Energy data. Although the currencies of coal-producing countries have strengthened relative to the U.S. dollar, they remain weak relative to historical levels.
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 11.1 million MWh/d, the EIA expects that natural gas will provide 31.8% of the nation's electricity in 2017 to coal's share of 31.1%. The government expects that power-sector coal consumption will total 683 million tons in 2017 before sliding to 679 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 long run.
But so far, government estimates show coal production has increased year over year, with the EIA estimating coal production at 14.5 million tons for the week that ended April 1. That figure is up 0.2% versus the prior week and up 18.5% versus the comparable week in 2016, bringing year-to-date production 15.5% higher year over year to 201.7 million tons.
SNL Energy is an offering of S&P Global Market Intelligence. 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.