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Coal exports from Central Appalachia, Illinois Basin mines surged YOY in 2018

Exports were the talk of the U.S. coal sector in 2018, and port data showed especially significant year-over-year increases at terminals shipping coal from Central Appalachia and the Illinois Basin.

Terminals in Norfolk, Va., which exported the most coal and petroleum coke in 2018, saw an 18.7% increase to 38 million tonnes as metallurgical coal producers took advantage of the strong international market, according to data compiled by S&P Global Market Intelligence.

Tonnage from the mid-Atlantic port to Europe rose significantly in 2018 from the year-ago period, suggesting strong demand for Appalachian coking coal, Clarksons Platou Securities analyst Jeremy Sussman said in a March 11 interview. Norfolk Southern Corp.'s Lamberts Point facility "tends to be the most met coal-heavy of the U.S. East Coast terminals," he said, and much of the port's tonnage comes from Coronado Coal LLC's Buchanan mine in Virginia.

Since the global coal market was strong last year, some countries that usually compete with the U.S. for European market share might have focused their attention elsewhere, presenting an opportunity for domestic producers, said B. Riley FBR analyst Lucas Pipes.

Total U.S. coal exports increased by 19% in 2018 to 105.9 million tonnes, while petroleum coke exports dropped slightly from 38.9 million tonnes in 2017 to 38.8 million tonnes last year.

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The Port of New Orleans had the largest percentage growth of export coal and petroleum coke in 2018, posting a 35.8% uptick year over year to 28.7 million tonnes. Illinois Basin producers ship much of their export coal through New Orleans, which exports predominantly thermal coal, analysts said.

The improved seaborne market and the competitive cost of the region's coal allowed Illinois Basin miners to increase their exports last year, said Gregory Marmon, a Wood Mackenzie senior research analyst.

But Sussman said Northern Appalachian coal is "stickier" than the Illinois Basin product because it travels well and has a higher heat content, which could give it a competitive advantage.

"If we do see the export market start to tick back up, then New Orleans should remain relatively healthy," he said, "but I would say of all the terminals it's probably going to have the most variability, especially based on sort of a fluctuating thermal pricing."

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The Port of Baltimore, which exports both thermal and coking coal, saw a 3.4% increase in coal and petroleum coke exports in 2018 from 2017. Shipments from the port to Asia increased during the period and analysts have said Asian nations, particularly India, will offer the largest growth opportunities for producers in the coming years.

Baltimore terminal owner Consol Energy Inc. shipped coal from its Pennsylvania mines to India, which likely contributed to the rise, Sussman said. While U.S. coal exports may not be quite as strong in 2019 as in 2018, Sussman projects India will continue to demand Northern Appalachia coal.

"I wouldn't view the pickup in 2018 as an anomaly," he said. "… India needs high-quality coal and certainly the U.S. has, in terms of heat content, among the best in the world when it comes to Northern Appalachia. Logistically speaking, Northern App to India works quite well."

Consol Energy CEO Jimmy Brock said on a Feb. 7 earnings call that the company expects to sell 8 million tons of coal to the international market this year.

"Europe and India are our key export destinations," he said, "and we're not seeing any meaningful slowdown in demand for our coal."

Benjamin Nelson, senior credit officer and lead coal analyst at Moody's, said some Asian nations' coal demand is increasing faster than their supply, creating an opportunity for domestic producers. Those countries may import higher-quality coal to help curb pollution, rather than burning their own lower-quality fuel.

"There can be year-to-year, quarter-to-quarter volatility depending on pricing and when mines open up and when power plants open up and so forth," he said, "but the trend is still positive."

The U.S. Energy Information Administration and other experts forecast that thermal and metallurgical coal exports will decrease from 2018 to 2019.

Sussman said he plans to keep an eye on the thermal market more than the metallurgical sector, given that steam coal prices have fallen below the average price last year.

"While I suspect the majority of first-half volumes were committed at higher pricing, there's probably some open volumes in the back half of the year," he said, "which, if pricing doesn't move, would likely lead to some declines in year-over-year thermal exports — not on a massive scale, but enough for the market to notice."