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Houston — With Foresight Energy's Deer Run mine in Illinois essentially ready to resume production, some in the market are questioning whether the Illinois Basin can absorb the additional supply, particularly at a time when benchmark delivered European prices are at a three-year low.

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And it is not just Deer Run. Hallador Energy's Carlisle mine in Indiana, Alliance Resource Partner's Gibson North mine in Indiana and Paringa Resources' new Poplar Grove mine in Western Kentucky are all either returning to service or starting up.

Others say Europe is not the market to watch, and that growth in new markets like Egypt and India can absorb additional IB supply.

And still others say the export market has and always will be fickle, and that any prolonged downturn will also impact new markets, leaving producers with a glut of tons and nowhere to place them.

These all presume a weak domestic market due to cheap natural gas, increased penetration from renewables and aggressive renewable energy standards that will continue to drive coal retirements.

"When the export markets drops off, you have to get to work to get that coal placed into the domestic market, but that won't happen today," said a US-based marketer. "There's nowhere for it to go."


Last week, an Illinois state agency approved a five-year extension for Deer Run, which means the company is free to resume production.

It has largely been idle since a combustion event in March 2015, but resumed production earlier this year.

In 2014, its last full year of production, the mine produced 5.6 million st, the sixth highest in the basin.

That year, total basin production totaled 137 million st, and exports out of New Orleans totaled 7.1 million st, or 5.2% of annual production.

In 2018, IB production totaled 106 million st, and New Orleans exports totaled 17.5 million st, or 16.5% of annual production.

In other words, the domestic IB market in 2014 totaled roughly 130 million st, but shrunk to 88.5 million st in 2018, a drop of nearly one-third.

Exports have been strong in recent years due to higher seaborne pricing. Between January 2016 and December 2018, the daily price for Platts' CIF ARA marker, for delivered thermal coal into Northern Europe, averaged $78.76/mt, and peaked in July 2018 at $103.25/mt, a more than six-year high.

Prices at those levels supported the IB export market. Producers and traders took advantage, booked sales and put on hedges, which likely means exports will continue to flow for much of 2019.

Through the first two months of 2019, bituminous coal exports through New Orleans total 3.4 million mt, which is the highest total for the period dating back further than even 2012, the year annual US exports peaked.

Old markets, such as Europe, continue to take IB coal, particularly to blend with low sulfur Russian coal. Exports through New Orleans to the Netherlands in the first two months of 2019 totaled 1.1 million st, nearly 200% higher than the same period last year.


But producers and traders are also growing new markets.

Through the first two months of 2019, exports from New Orleans have gone to Greece, Poland, Togo, the Dominican Republic, Guatemala and Jamaica, all of which took zero tons during the same period last year.

Exports have also increased to Egypt and the United Kingdom, while exports continue to India, the second biggest market for exports from New Orleans, but at a lower pace than 2018.

But how long will the current downturn in CIF ARA pricing last? The price was assessed Friday at $58/mt, down 32% from the start of the year. But the forward curve for CIF ARA has held up better, which Platts assessed Friday at $73.50/mt for 2020 and $75.15/mt for 2021.

"We view the large drop in CIF ARA pricing as temporary," said a US-based source. "That is a signal that the demand in NW Europe is down and a signal to not buy more coal, but they're still taking delivery of coal they already contracted for last year, and it's a lot of coal."

"However, CIF ARA pricing is not the relevant price to look at for pricing US coal exports to new markets," the source added, indicating other global markers are showing more resiliency.

A decision by Foresight to ramp up Deer Run might also be negligible, said the US-based source. He pointed to Foresight's most recent quarterly filing, which guided to 2019 production of 22 to 23 million st, in line with the 23.4 million st it produced in 2018.

In other words, Foresight could replace higher cost tons with the presumably lower cost tons from Deer Run.

An email to Foresight seeking comment was not returned.


Ultimately, whether its export or domestic, the producer with the lowest cost is going to take the most market share, said several sources.

But in the short term, an aggressive producer or trader who is motivated to move tons, that can undercut competitors, will set the market, said a second US-based source.

"To really clean up the backlog in 2019, IB coal has to be priced in mid $30s/mt in the vessel," said the second US source. "If you want to move all these tons, and make sure counterparties are going to pay you, that's what it's going to take - that's how severe this market has become so quickly."

Platts on Friday assessed IB coal, basis 6,000 kcal/kg, FOB New Orleans, at $49/mt, unchanged from last week.

-- Andrew Moore,

-- Edited by Derek Sands,