U.S. coal exports were roughly flat in the second quarter compared to shipments made in the prior period but remained down 18.1% compared to the second quarter of 2018.
About 23.2 million tonnes of coal were shipped from U.S. ports in the second quarter, nearly flat compared to 23.0 million tonnes of coal shipments in the prior quarter and down significantly from 28.3 million tonnes of coal exports in the second quarter of 2018. Exports heading to India, the sector's largest customer, were down 24.6% year over year and 16.9% quarter to quarter.
The U.S. Energy Information Administration recently projected annual coal exports would sink by about 15.6 million tons, to 100 million tons, this year. Exports are expected to fall further to 90.4 million tons in 2020.
Japan, the No. 2 destination for U.S. coal exports in the second quarter, boosted U.S. coal imports by 13.0% quarter to quarter.
European steelmakers have struggled in recent months, leading to lower demand for U.S. metallurgical coal, Seaport Global Securities LLC said in an Aug. 13 analyst note. Ports in the Netherlands, a typical point of entry for shipments heading to customers throughout Europe, took about 6.7% less coal from ships originating in the U.S.
"For U.S. met coal producers, Europe is a critically important market," Seaport Global analyst Mark Levin wrote. "Yes, India is the future, but Europe is where most U.S. met coal exports go today. ... While the retreat in iron ore and coking coal prices will certainly help on the raw material side, steel prices continue to slide, which is worrisome, to say the least."
Foresight Energy LP President and CEO Robert Moore said the netbacks on export tons are falling compared to the levels seen before, and the company is evaluating options to move coal back into domestic markets.
"We are shipping coal everywhere that we can find a home for it. I mean, we're moving coal into South America. We're moving coal into Asia. We're still moving coal into Europe," Moore said. "If these export markets aren't there, then we're poised to take domestic share. And that's what we're going to do."
The president and CEO of another Illinois Basin producer, Alliance Resource Partners LP, said Alliance is prepared to capture domestic business from higher-cost producers by either selling at a lower price or working out a deal to sell its coal to its peers to fulfill contracts of higher coal producers if export markets do not improve.
"I'm not counting on the domestic market mix changing and I'm not counting on the domestic market growing," Joe Craft said. "I'm just saying, we can absorb. If there's no export market or the export market stays flat, there are opportunities for us to sell coal domestically that would be more attractive than selling into the current price curve for [the European coal price benchmark] API2."
Hallador Energy Co. President and CEO Brent Bilsland said the company believes that the recent downturn in export markets is cyclical in nature and not structural. He expects that Illinois Basin coal will soon start flowing again to India and Eastern Europe to fuel growth in those markets.
"The export market definitely has deteriorated significantly from a year-ago time frame," Bilsland said. "I question how much of the drop is actual physical trades and more, how much of that is just traders trying to get out of positions. We think that exports will come back stronger, but it needs a little time to unwind itself."
Eastern U.S. coal producers, which have not been as hindered by logistical issues created by inclement weather as Illinois Basin miners, seem to be struggling less to access international markets.
Pennsylvania-based Consol Energy Inc. President and CEO Jimmy Brock said the company is gaining market share, with plans to ship 9 million tons of coal into international markets this year, compared to 8.1 million tons exported in 2018. Despite recent price weakness, Arch Coal Inc. CEO and director John Eaves said he believes that overall, markets are pretty well-balanced in light of recent underinvestment in global coal supply.
"We continue to look long term," Eaves said on a July 24 earnings call. "We feel very confident with our cost structure, our quality and our balance sheet being able to manage through these dips and really capitalize when they move up."