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OTC market: Coal prices mixed amid forex, natural gas price movements

Coalprices were mixed during the week ended March 31 as natural gas prices rosetoward the $2 mark.

Pricesfor delivery next quarter showed the most strength as Central Appalachian and PowderRiver Basin coal products edged higher. The NYMEX-spec product posted thestrongest gain of the week as it climbed 1.5% to $44.78/ton. For delivery in2017, the 8,800 Btu/lb PRB product edged 0.8% higher to $9.75/ton, while the12,500 Btu/lb, less-than-1% sulfur product slipped 0.6% to $44.62/ton.

Acombination of factors is weighing on the domestic thermal markets, includinglow natural gas prices and elevated coal stockpiles. Weakness in internationalcoal markets has added to domestic producers' woes as U.S. coal that wouldotherwise be shipped overseas is absorbed into the nation's supply. As the U.S.dollar has strengthened relative to the currency of other coal-producingnations, it has cushioned the impact of falling international coal prices onproducers that operate outside the U.S.

ThroughMarch 31, prompt-month natural gas futures are down 16.1% year-to-date and27.8% year over year to $1.959/MMBtu. As natural gas prices have weakened, coalstockpiles have grown.

Throughthe end of January, power-sector coal stockpiles were 23.2% above the 10-yearaverage to 189.1 million tons, according to the U.S. Energy InformationAdministration, which estimated days of burn at 18.1% and 47.2% above thefive-year average for bituminous and subbituminous coal, respectively.

Meanwhile,the international coal market is not in much better shape as prompt-month API2swap futures are down 5.8% year to date and 23.3% year over year to $45/tonne.

Inits latest short-term outlook,the EIA cited weak global fundamentals and low international coal prices aslimiting U.S. coal exports through 2017, as "lower mining costs, cheapertransportation costs and favorable exchange rates … continue to provide anadvantage to mines in other major coal-exporting countries."

Asof March 31, the Australian dollar has improved 5.5% on a year-to-date basisand 1.5% year over year relative to the U.S. dollar, while the Colombian pesois down 16.4% relative to the U.S. dollar year over year, according to SNLEnergy data.

Amida weak U.S. coal export outlook, the EIA expects that coal-fired generationwill fall behind gas-fired generation as the nation's top provider ofelectricity for the first time annually in 2016. The U.S. government trimmedits short-term outlook for coal demand to 711 million tons in 2016, down 4.8%versus the prior outlook, and expects it to recover to 721 million tons in2017, down 3.9% versus the prior outlook. The latest projections reflectchanges to the government's assumptions about how coal generation retirementswould affect generation patterns in the coming years. The government also blamedthis year's mild winter and low natural gas prices for sliding demand.

Longer-termprojections have U.S. coal consumption and production sliding because of market andregulatory factors.

Coalproducers are struggling to balance running their operations efficientlyagainst maintaining market share, and higher-cost production has fallen off.After seeing the largest coal production decline on record in 2015, thegovernment expects the supply mix to shift among coal-producing regions.

In2006, the Interior region, which includes the Illinois Basin, accounted for 13%of production, and the EIA expects that to grow to 21% of production in 2016and 2017, as production declines at a slower rate than that of the Appalachianand Western regions.

EIAcoal production estimates show all coal-producing regions are being hit by theweak market. During the week ended March 26, domestic coal production totaled11.6 million tons, down 37.8% versus the year-ago week, with the Appalachianregion seeing a 41.8% decline. Year-to-date through March 26, total domesticcoal production is down 31.7% to 157.3 million tons, with the Western regionaccounting for approximately 52% of that decline.

SNLEnergy is a part of S&P Global Market Intelligence. Market prices andincluded industry data are current as of the time of publication and aresubject to change. For more detailed market data, including power,naturalgas and coalindex prices, as well as forwardsand futures,visit our Commodities Pages. For weekly U.S. coal production data, visit our regional coalproduction data page. For foreign currency exchange rates, visit our currency exchangerates data page.