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US thermal coal exports fall through 1st half of year, but all eyes on H2'19

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US thermal coal exports fall through 1st half of year, but all eyes on H2'19

U.S. thermal coal exports in the first six months of 2019 fell 18.1% year on year, according to data released Friday by the U.S. Census Bureau.

While many industry watchers expected volumes to slow in 2019, the real concern is the next six months and into 2020, given the decline of the CIF ARA market.

Platts' CIF ARA assessment, for 6,000 kcal/kg NAR coal delivered in Northern Europe, started the year at $85.70/t, and fell 47% to bottom at $45/t on June 19, nearly matching the lows of the global coal crash in the spring of 2016.

Prices rebounded to $61.60/t on July 24, but are again slipping, assessed Friday at $57.25/t.

The decline can be pegged to oversupply and a lack of demand in Europe due to mild weather, higher carbon prices and a glut of gas.

The benchmark European TTF price for natural gas was assessed Friday at $3.687/MMBtu, only slightly better than the all-time low of $3.056/MMBtu assessed on June 27.

Bearish sentiment has weighed on CIF ARA futures as well, with the Cal 2020 price assessed by Platts on Friday at $68/t, down from a high of $87/t in mid-January.

Harder to hedge

Lower futures prices make it harder for US producers to hedge export tons, meaning a pullback in exports, at least to Europe, are extremely likely, market watchers say.

"Eventually we're going to see prices push up or we'll see a decline in production," a U.S.-based based market participant said.

Taking the first six months of U.S. thermal coal exports into account, full-year exports on an annualized basis would total 39 million tonnes, down 20.5% from 2018. That would mean a surplus of roughly 10 million tonnes to be rationalized or absorbed by the domestic market, which in itself is in decline.

According to U.S. Energy Information Administration data, U.S. coal consumption through June totaled 262 million tons, down 12.5% from 299 million tons year on year.

"There may be no place for US tons," a second U.S.-based market participant said. "The Russians are playing us like chumps with both their natgas and coal going into Europe, and they have found the point pricing-wise where they are now recognizing U.S. steam coal suppliers cannot participate, no matter what."

Alliance lowers export guidance

In late April, Tulsa, Okla.-based producer Alliance Resource Partners LP, the largest producer in the Illinois Basin, lowered its 2019 target for export coal sales to roughly 11 million tons from 12 million tons, then lowered it again last week to 9 million tons, citing market uncertainty.

The partnership, however, maintains a positive outlook.

"There is no question that the recent market has been challenged, but we absolutely view these circumstances as cyclical and not structural," Alliance CEO Joe Craft said during the company's quarterly earnings call last week. "And as we look forward, the structural supply-demand fundamentals are favorable, and we expect we will be able to take advantage of those."

Alliance maintains that as a low-cost producer, it will be better suited to weather a prolonged downturn in the market. But with the ongoing decline of coal demand in Europe because of its rapid decarbonization, the question is at what point a downturn is cyclical versus structural.

India is the biggest market for U.S. thermal coal and remains a beacon of hope for U.S. producers. The country imported 5 million tonnes of U.S. thermal coal through June, compared with Dutch imports of 2.8 million tonnes, second to India.

"Come October 1, the number one question will be where can you sell 5 million tons," a third US-based market participant said. "In Q4, the only game in town will be India, and those guys are looking at a smorgasbord."

Andrew Moore is an editor with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.