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Coking coal demand continues wave of new projects; Cloud Peak proposes auction

Several mining companies announced plans to develop or explore additional metallurgical coal capacity on their fourth-quarter 2018 earnings calls and projected strong market demand fueled another round of announcements following the first quarter.

Though metallurgical coal exports are expected to fall year over year in 2019, Contura Energy Inc. and Consol Energy Inc. both announced new coking coal capacity projects on their recent earnings calls and other producers touted the strength of their metallurgical operations.

Contura announced this week that it plans to develop the Lynn Branch project in West Virginia, producing between 1 million and 1.2 million tons of coal annually.

"Met markets are exhibiting strong fundamentals and we expect that they will continue to do so, with both the supply and demand side behaving quite well," said Kevin Stanley, Contura's executive vice president and chief commercial officer.

Consol President and CEO Jimmy Brock told S&P Global Market Intelligence that the coal from the company's newly announced low-vol Itmann mine will compete in different markets than the high-vol A and high-vol B projects. He also expects the development to benefit from a recently passed tax break for new coal mining projects in West Virginia.

"We have done the analysis," he said. "I will tell you this; none of that is in the economics that we put into the project."

Coal exports are helping drive some of the capacity investments as miners focus more on opportunities in the global market while coal plants continue to retire at home. Though many western nations are moving away from coal, demand is growing in Southeast Asia, the Middle East and West Africa, Javelin Global Commodities (UK) Ltd. CEO Peter Bradley told a crowd of fuel buyers at a May 14 industry conference.

"U.S. coal exports, while they will come and go, because of the volatility of worldwide markets, are in a large sense here to stay," he said.

Thermal coal exports last year helped offset the lag in the domestic market as many utilities shift away from coal. Una Nowling, the service area leader for fuels and reliability planning at engineering firm Black & Veatch Corp., is studying what causes companies to retire coal-fired units early in the U.S. and how to keep remaining coal plants on the grid.

Her research so far suggests plants that are used often, located east of the Mississippi River, accessible by rail, can burn coal from the Powder River Basin and contain emissions controls, among other factors, have a better chance of survival.

In other steam coal news, spring Midwestern flooding was worse than the last several years, and utilities may continue to feel an impact on their stockpiles as they head into the summer months, according to rail, coal and utility representatives at a May 15 industry event. The flooding delayed shipments out of the Powder River Basin but also caused high water levels on the Mississippi River, impacting some tonnage from the Illinois Basin.

Just a few days after filing for bankruptcy protection, Cloud Peak Energy Inc., a pure-play Powder River Basin coal producer, proposed May 14 to auction off its assets in late June. An S&P Global Market Intelligence analysis showed that the company's production dropped significantly in the quarters leading up to its bankruptcy filing.

Most of the coal produced in the U.S. is sold to domestic utilities for energy generation, but coal advocates are working to develop new uses for the fuel to keep the sector alive. National Coal Council representatives said this week they have almost completed a report for U.S. Energy Secretary Rick Perry detailing potential coal uses outside of generation.

"Coal, and the carbon it contains, is on the crest of powering a wave of innovation in advanced products and manufacturing," the draft report states. "The opportunity for the U.S. represented by these markets is compelling."

Upcoming events

Southern States Energy Board: The board and Virginia Coal & Energy Alliance Inc. will hold their annual conference from May 20-21 in Kingsport, Tenn. Attendees needed to register May 17 before 5 p.m. ET.

Coal Exports Q&A: The American Coal Council is hosting a webcast discussion with Doyle Trading Consultants representatives on coal export trends at 2 p.m. ET on May 23. Registration is required.

National Coal Transportation Association: The association is holding its 2019 Operations and Maintenance Conference from June 10-12 in St. Louis.