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OTC market: US thermal coal prices mixed as CAPP rail value falls

U.S. thermal coalprices were mixed during the week ended Sept. 29, as rail-delivered CentralAppalachian coal prices ceded a portion of the gains.

Prompt-month pricesticked higher while 12,500 Btu/lb, less-than-1% sulfur coal dropped 4.5% and2.8%, respectively, for delivery next quarter and in 2017.

During the year,producers have become more aggressive in cutting coal production in the face ofmarket headwinds, including low natural gas prices and elevated coalstockpiles. Weakness in international coal markets has added to domesticproducers' woes as U.S. coal that would otherwise be shipped overseas isabsorbed into the nation's supply. As the U.S. dollar has strengthened relativeto the currency of other coal-producing nations, it has cushioned the impact offalling international coal prices on producers that operate outside the U.S.

Lately, however,the natural gas market has shown strength as natural gas storage inventorieshave been climbing at a lower-than-average rate. Through Sept. 29, prompt-monthnatural gas futures are up 26.8% year to date and up 21.6% year over year to$2.959/MMBtu.

Still, the marketmust chip away at elevated coal stockpiles in order for coal prices to recover.Through the end of July, power-sector coal stockpiles were 10.4% above the10-year average at 171.7 million tons, according to the U.S. Energy InformationAdministration, which estimated days of burn at 25.7% and 37.9% above thefive-year averages for bituminous and subbituminous coal, respectively.

Meanwhile,international coal prices remained near 52-week highs. Prompt-month API2 swapfutures are up 31.7% year to date and up 23.2% year over year at $62.90/tonne.

The EIA has citedweak global fundamentals and low international coal prices as limiting U.S.coal exports, as "lower mining costs, cheaper transportation costs andfavorable exchange rates continue to provide an advantage to mines in othermajor coal-exporting countries." In its latest outlook, the government agency raised itsexpectations for 2016 U.S. coal exports 5.9% to 58.7 million tons. That figureis down 20.6% versus 2015, and the government expects 2017 exports to slideanother 9.9% to 52.9 million tons.

As of Sept. 29, theAustralian dollar is 5.2% stronger year to date and 8.0% stronger year overyear relative to the U.S. dollar, while the Colombian peso is 6.4% strongerrelative to the U.S. dollar year over year, according to SNL Energy data.Although currencies of coal-producing countries have strengthened relative tothe U.S. dollar, they remain weak relative to historical levels.

Amid a weak U.S.coal export outlook, the EIA expects that coal-fired generation will fallbehind gas-fired generation as the nation's top provider of electricity for thefirst time annually in 2016. On revising lower its natural gas price forecast,the U.S. government trimmed its short-term outlook for power-sector coal demandto 673 million tons in 2016, down 0.4% versus the .

Longer-termprojections have U.S. coal consumption and production sliding whether or not carbonemissions limits are enacted.

Amid fallingdomestic demand, higher-cost production has fallen off. The government expectsthe largest coal production decline, on both a percentage and tonnage basis,since record keeping began in 1949, with the largest percentage declines comingout of the western U.S. and Appalachia.

EIA coal productionestimates show that all coal-producing regions are being hit by the weakmarket. During the week ended Sept. 24, domestic coal production totaled 15.7million tons, down 11.8% versus the year-ago week, with the Appalachian regionseeing an 11.9% decline. Year to date through Sept. 24, total domestic coal productionis down 22.7% to 523.5 million tons.

SNL Energy is an offering of S&P Global MarketIntelligence. Market prices and included industry data are current as of thetime of publication and are subject to change. For more detailed market data,including power,naturalgas and coalindex prices, as well as forwardsand futures,visit our Commodities Pages. For weekly U.S. coal production data, visit our regional coalproduction data page. For foreign currency exchange rates, visit our currency exchangerates data page.