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US coal exports drop in third quarter despite international rally


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US coal exports drop in third quarter despite international rally

Coal exports dropped by several million tons in the U.S. despite a rally in the international coal market, according to a report released by the U.S. Energy Information Administration.

Exports fell to around 12.6 million tons in the third quarter of 2016, down from more than 16.9 million tons in the same period in 2015 and around 14.2 million tons in the second quarter of this year, according to the U.S. EIA's Quarterly Coal Report released on Dec. 22.

Jack Chidester, associate vice president of Doyle Trading Consultants, told S&P Global Market Intelligence that the failure of the U.S. to grab onto the international metallurgical coal rally in the third quarter was partly due to a lag in amping up or creating new production.

"It's not like within a day's time they can add a million tons or something," Chidester said, and added that there have been some staffing issues as well. "I understand it hasn't been very easy to find new miners because many laid-off miners have gotten jobs in new industries."

Some U.S. producers, he said, were also waiting to see if the rally lasted before increasing production. "I don't think they were ready to pull the trigger on increased production."

The U.S. was not well-positioned geographically to take advantage of an increase in demand that was largely driven by China, Chidester added. Countries like Australia were more likely to divert some of their Europe shipments toward Asia. The U.S. will likely benefit from this as there will be an increase in demand in Europe, but this will occur a couple of months after the initial rally.

"It's sort of a step-down procedure," he said. "It looks like Q4 is when you'll really see an increase in these export rates."

The EIA reported 79,530 tons of metallurgical coal were exported to China in the third quarter of 2016, compared to zero tons in the prior quarter and in the same period in 2015. Europe as a whole imported nearly 4.3 million tons of metallurgical coal from the United States in the recent quarter, down from the nearly 5.1 million tons imported in the third quarter of 2015.

He said that while prices were around $139 per ton by the end of August, "the coking coal rally really did not hit a stride until September." While the gains in international prices were large, they were not enough to hit a profitable price for U.S. producers when taking freight costs and quality adjustments into account.

According to the report, average export prices hit the highest of the year at $67.24 per ton in the third quarter. While a slight improvement on the $65.79 per ton and $61.41 per ton in the second and first quarters, respectively, this number is still a little lower than the $73.52 per ton average in the third quarter of 2015.

The lion's share of imports came from Colombia in the third quarter, according to the EIA. The U.S. imported nearly 2.2 million tons from the South American country whereas it only took 323,436 from Canada, the next largest provider on the list. The average price of Colombian coal was $61.74 in the third quarter of 2016, while Canadian coal sold for an average of $80.09.

Some analysts have noted that the election of Donald Trump may clear some federal hurdles in the way of planned coal export terminals in the U.S., but challenges remain in the overall market for exported U.S. coal even if some of these ports are built.

The U.S. EIA also reported that Kentucky coal production rose above that of Illinois in the third quarter of 2016 compared to the prior quarter when it was the fifth-most-producing state after Wyoming, West Virginia, Pennsylvania and Illinois.