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US thermal coal prices mixed as Central Appalachian prices move higher

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Six trends shaping the industries and sectors we cover in 2021

Six trends shaping the industries and sectors we cover in 2021

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Essential Energy Insights - January 2021


US thermal coal prices mixed as Central Appalachian prices move higher

Coal prices were mixed during the week that ended Aug. 10, with only the 12,500 Btu/lb, less-than-1% sulfur product posting gains along the entire forward curve.

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During 2016, producers aggressively cut coal production in the face of market headwinds, including low natural gas prices and elevated coal stockpiles. Weakness in international coal markets added to domestic producers' woes as U.S. coal that otherwise would have been shipped overseas was absorbed into the nation's supply.

During the second half of 2016, the natural gas market moved higher as natural gas storage inventories increased at a slower-than-average rate. The market had approached $4/MMBtu, but a mild winter brought the market lower. Through Aug. 10, prompt-month natural gas futures are down 10.3% year-to-date but are up 17.0% year over year to $2.985/MMBtu.

Through the end of May, power-sector coal stockpiles were 6.2% below the 10-year average at 164.9 million tons, according to the U.S. Energy Information Administration, which estimated days of burn at 3.0% above and 10.0% above the five-year average for bituminous and sub-bituminous coal, respectively.

The month's 1.3 million-ton draw in stockpiles defied the 10-year average build of 4.1 million tons. Analysts have said elevated stockpiles are impeding coal price recovery, but they remain concerned about weaker-than-expected coal burn at the start of summer.

Citing Energy Venture Analysis estimates, FBR & Co. analyst Lucas Pipes wrote in a July 19 report that June coal burn was "substantially lower" than expectations. "[Higher year-over-year] natural gas prices should have [led] to stronger coal consumption. ... Some of the decline will probably have to be attributed to structural headwinds."

Meanwhile, prompt-month API2 swap futures are down 1.5% year-to-date but are up 38.9% year over year at $84.40/tonne.

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The EIA has cited weak global fundamentals and low international coal prices as limiting U.S. coal exports, as "lower mining costs, cheaper transportation costs and favorable exchange rates continue to provide an advantage to mines in other major coal-exporting countries." In its latest outlook, the agency trimmed its expectations for 2017 U.S. coal exports by 2.1% to 70.4 million tons. That figure is up 16.8% versus 2016, but the EIA expects 2018 exports to slide 16.2% year over year.

As of Aug. 10, the Australian dollar is 8.2% stronger year-to-date and 2.1% stronger year over year relative to the U.S. dollar, while the Colombian peso is 2.1% weaker relative to the U.S. dollar year over year, according to SNL Energy data.

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EIA estimates show that coal-fired generation fell behind gas-fired generation as the nation's top provider of electricity for the first time annually in 2016, but the agency expects that trend to reverse in 2017 before coal and natural gas provide a nearly equal share of the nation's power in 2018. While U.S. generation averages 11.0 million MWh/d, the EIA expects that natural gas will provide 30.8% of the nation's electricity in 2017 to coal's share of 31.6%. The government expects that power-sector coal consumption will total 693 million tons in 2017 before climbing to 700 million tons in 2018.

Longer-term projections for domestic coal consumption and production are bleak and highlight the natural gas market's and government policy's influence in both the short run and the long run.

But so far, government estimates show coal production has increased year over year, with the EIA estimating coal production at 16.1 million tons for the week that ended Aug. 5. That figure is down 0.1% from the prior week and up 4.7% from the comparable week in 2016, bringing year-to-date production 14.5% higher year over year to 465.8 million tons.

SNL Energy is an offering of S&P Global Market Intelligence.

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power, natural gas and coal index prices, as well as forwards and futures, visit our Commodities pages.