The U.S. thermal coal export market is set to thrive in 2018, owing to higher global prices, specifically a favorable arbitrage into Europe, the president of U.S. trading company XCoal Energy & Resources LLC said at an industry gathering June 4.
"The U.S. [coal] industry is alive again," Xcoal President and Chief Commercial Officer Jack Porco said in a speech at Coaltrans Poland.
The U.S. has been benefiting from higher global prices, especially the CIF ARA price, in recent months, he said.
In 2017, the U.S. saw its first increase in production in over five years, Porco said, adding that unlike other producing nations, the U.S. can handle a significant export capacity as it already has the infrastructure in place from previous years of large export volumes.
"At today's price, the U.S. can participate from every basin," he said, highlighting how Central Appalachian coal, in particular, had benefited from a higher CIF ARA price, having more than tripled in 2017.
With exports out of the U.S. for all types of coal at 89.5 million tonnes in 2017, he said he expects this year's figure to be around 93 million tonnes.
European arbitrage
"We see increased U.S. demand in Europe," said Porco, pointing out that a wide f.o.b. Newcastle-CIF ARA spread has seen traditional suppliers to Europe, such as Colombian sellers, move to the Pacific markets.
Other attractive features of selling into Europe has been the less steep backwardation in the CIF ARA futures curve (highlighting the third-quarter/fourth-quarter spread currently). Porco said this has meant buyers in Europe have been willing to commit to more forward business for up to and over nine months, which he said has been something he has not seen in recent years.
He said, however, that factors such as foreign exchange can be a "wild card" for U.S. sellers as a fluctuating euro/dollar rate can eat into margins.
