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DTC: Global demand provides 'bright spot' for US thermal coal producers

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DTC: Global demand provides 'bright spot' for US thermal coal producers

While consumption in the U.S. domestic thermal coal market is on a downtrend, global demand is only growing, providing opportunity for U.S. producers to take advantage of the opening markets, Doyle Trading Consultants LLC executive said May 23.

"For the most part, the thermal market is in contango," Andy Blumenfeld, head of Market Analytics at DTC said during the American Coal Council-sponsored presentation.

Global coal demand remains quite strong with 111 GW of coal capacity currently under construction around the globe and an additional 300 GW of planned coal plants.

"Clearly exports are the bright spot" Hans Daniels, DTC CEO, added. Although prices have fallen in the past few months, "traders believe the market has reached the bottom of the cycle. Prices are now in contango, which provides some hope."

"At the end of the day, coal has to go somewhere," Daniels said. "When you have shrinking demand, that's going to push the coal into the international market."

The Pacific is an emerging region for coal exports, and India will be a big buyer for high sulfur coal, Blumenfeld said, also noting the growing markets in the Mediterranean and Eastern Europe.

Plus, given the growing demand from the Pacific and the falling demand from Europe, the API2 is far less influential and the API4 is becoming the more important index.

DTC does expect exports to remain strong, even as they fall off somewhat in 2019. On the thermal side, Daniels expects exports of 47 million tonnes this year compared with 54 million tonnes last year.

However, in 2018, 15.5% of all tons produced went to the export market, creating a market where "U.S. coal producers are very much dependent on exports," Daniels said.

Although it does vary by basin. Southern Appalachian production has about 76% going to the seaborne market, Central Appalachian has 59%, while NAPP, the Rockies and the Illinois Basin sends about 20% overseas and the Powder River Basin sends only about 2% given export constraints.

The ILB has the largest growth in the export market, Daniels said, with most of its exports going through New Orleans.

US port situation

The five-year average of thermal exports through the New Orleans ports is about 11 million tonnes, while last year exports were just under 20 million tonnes.

NAPP exports, on the other hand, face more difficulty getting into the seaborne market given the limited availability of port space out of Baltimore, Blumenfeld said.

Out of Hampton Roads, metallurgical coal will take a greater share as thermal netbacks become much more challenged with the declining CAPP price.

There are other outlets for coal exports, such as through the Great Lakes, Blumenfeld said, however, there remains a strong lack of infrastructure for coal handling along with other issues such as competition with other commodities.

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.