U.S. thermal coal prices were mixed in the week that ended Jan. 26 as the NYMEX-spec product posted the strongest gains of the week.
For delivery next quarter, the barge-delivered Central Appalachian coal price jumped 3.7% on the week as Powder River Basin coal prices edged 0.4% higher.
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 had added to domestic producers' woes as U.S. coal that would otherwise have been shipped overseas was absorbed into the nation's supply.
Over the summer and fall, the natural gas market moved higher as natural gas storage inventories increased at a lower-than-average rate. The market had approached $4/MMBtu, but milder weather has brought the market lower. Through Jan. 26, prompt-month natural gas futures are up 1.7% year-to-date and up 55.0% year over year to $3.382/MMBtu.
Analysts say stockpiles have been keeping a lid on the domestic thermal coal market, and that as utilities work through them, the domestic thermal market will become more volatile. Through the end of November 2016, power-sector coal stockpiles were 1.9% above the 10-year average at 172.1 million tons, according to the U.S. Energy Information Administration, which estimated days of burn at 14.8% above and 31.2% above the five-year average for bituminous and sub-bituminous coal, respectively.
Meanwhile, prompt-month API2 swap futures are up 3.4% year-to-date and up 93.3% year over year at $88.55/tonne.
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 government agency projected that exports will continue lower over the next two years. 2016 exports totaled 56.2 million tons, and the EIA projects that the U.S. will ship 54.4 million tons and 53.8 million tons, respectively, in 2017 and 2018.
As of Jan. 26, the Australian dollar is 4.0% stronger year-to-date and 6.0% stronger year over year relative to the U.S. dollar, while the Colombian peso is 12.6% stronger relative to the U.S. dollar year over year, according to SNL Energy data. Although the currencies of coal-producing countries have strengthened relative to the U.S. dollar, they remain weak relative to historical levels.
Amid weak U.S. coal exports, 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 prospect of that trend continuing amid stronger gas prices is less clear. The government expects that power-sector coal consumption will total 720 million tons in 2017 before backsliding to 710 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 long run.
But so far, government estimates show production ramping higher to start the year, with the EIA estimating that U.S. coal production for the week that ended Jan. 21 totaled 16.8 million tons, up 20.6% from the comparable week in 2016 to bring year-to-date production 13.5% higher year over year to 46.3 million tons.
SNL Energy is an offering of S&P Global Market Intelligence.
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