J.P. Richardson, vice president of operations for Metinvest BV subsidiary United Coal Co. LLC, discussed U.S. metallurgical trends at a conference co-hosted by the Virginia Coal and Energy Alliance Inc. and the Southern States Energy Board on May 20.
After nearly collapsing a few years ago, metallurgical coal markets are in a strong position once again and there seems to be a near-term floor on seaborne prices, said J.P. Richardson, vice president of operations for Metinvest BV subsidiary United Coal Co. LLC.
Relatively limited new supply is coupling with rising demand for steelmaking coal and U.S. miners are taking advantage of the relatively high and stable prices that result after a long period of low prices that decimated the sector. While a few new metallurgical coal mines or expansions were announced in recent weeks, companies are reporting a tightness in the market that continues to support solid prices keeping U.S. producers in the global market for metallurgical coal, Richardson said at a conference co-hosted by the Virginia Coal and Energy Alliance Inc. and the Southern States Energy Board on May 20.
"The metallurgical market in the United States was probably less than six months from going through a total collapse, which would have been a very striking blow to our national security," Richardson said. "Most of the major metallurgical coal producers, by 2016, had already filed bankruptcy once. Many of those same companies were out of cash again. They were facing a very uncertain future before the global supply-demand balance shifted and we started seeing some revival in met coal prices after mid-year 2016."
The U.S. metallurgical coal sector is often doing "really good, or really bad," Richardson said, because it is so dependent on export markets so a small change in the supply balance can quickly ripple through the market. A few years ago, coal companies levered up their balance sheets to buy metallurgical coal assets and the subsequent oversupply fueled financial troubles for the companies when demand weakened shortly after.
"I think, if you look across the U.S. companies today, they talk about the appetite of investors to put large dollars in a project — putting in a new coal mine is very expensive —and the financial institutions, some of them have taken some pretty hard knocks through some of the cycles in the past and have been unwilling to turn loose a lot of money," Richardson said at the conference. "We do think in the short term, again, you could have good pricing. We feel like that we should see prices staying between $175 to $215/tonne East Coast pricing, but your guess is good as mine."
Now, emerging markets such as India are expected to continue to need metallurgical coal for the foreseeable future, Richardson said. However, U.S. metallurgical coal miners often must deal with the uncertainty of short term sales agreements and are encountering increasingly difficult geology at their mines. Several coal companies, including Arch Coal Inc. and Consol Energy Inc., are announcing new metallurgical coal mines. Meanwhile, U.S. producers who mostly stuck to mining thermal coal, such as Murray Energy Corp. and Peabody Energy Corp., recently acquired metallurgical coal mines from other companies.
"We're mining the best of what's left. We've got a lot of metallurgical coal reserves that are challenging," Richardson said. "We still have some ups and downs. There will occasionally be something, a large mine in Australia will curtail production for some reason, or you'll have a U.S. producer that struggles for whatever reason. When those things happen, the supply-demand balance is so tight, you'll see a swing in prices, but the markets are so tight, those swings don't last very long and it will come back in pretty quickly."