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OTC market: PRB coal prices edge higher

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


OTC market: PRB coal prices edge higher

Coalprices were mixed the week ended April 28 as prices for western U.S. productsedged higher.

CentralAppalachian coal prices were flat to lower during the week, and prices for the 8,800Btu/lb Powder River Basin product headed roughly 2% higher along the front andthe back of the forward curve.

Whileproducers have become more aggressive in  coal  this year, acombination of factors continues to weigh on the domestic thermal markets,including low 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.

ThroughApril 28, prompt-month natural gas futures are down 11% year-to-date and 24.5%year over year to $2.078/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 4.1% year-to-date and 23.3% year over year to$45.80/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 April 28, the Australian dollar has improved 4.7% year-to-date but is stilldown 3.4% year over year relative to the U.S. dollar, while the Colombian pesois 22.4% weaker relative to the U.S. dollar year over year, according to SNLEnergy data.

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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 power-sector coal demand to 689 million tons in2016, down 3% versus the prior outlook, and expects it to recover to 706million tons in 2017, down 2.1% versus the prior outlook.

Longer-termprojections have U.S. coal consumption and production sliding  because of marketand regulatory 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, the governmentexpects 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 20% of production in 2016and 2017, as production declines at a slower rate than that of the Appalachianand Western regions.

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EIAcoal production estimates show that all coal-producing regions are being hit bythe weak market. During the week ended April 23, domestic coal productiontotaled 10.3 million tons, down 38.7% versus the year-ago week, with theAppalachian region seeing a 43.7% decline. Year-to-date through April 23, totaldomestic coal production is down 33.3% to 199.9 million tons, with the Westernregion accounting for approximately 52% of that decline.

Inan April 14 research report, FBR & Co. analyst Lucas Pipes wrote that the "unprecedented"supply response could alleviate the current stockpile glut, and the prospect ofa cyclical recovery in natural gas prices means that production would have togrow in 2017 to meet coal demand.

SNLEnergy is an offering 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 powernaturalgas and coal indexprices, as well as forwards and futures,visit our Commodities Pages. For weekly U.S. coal production data, visitour regionalcoal production data page. For foreign currency exchange rates, visitour currencyexchange rates data page.