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London — US coal rail rates came under pressure from low coking coal prices in the second quarter and weaker coal demand in regional and export markets, according to rail operators and suppliers.

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As reference Australian coking coal prices were weak in the second quarter at just over $113/mt FOB and down 24% from the first quarter, formula-based adjustments may lower rail rates.

According to industry sources, export coal transportation pricing has fallen compared with early in the first quarter and 2019 for hauling met coal from Appalachian mines to export ports on the US East Coast.

Along with additional negotiated rates, fee cuts may help coal move for export.

At major Central Appalachian operator Norfolk Southern, export coal volumes in the second quarter fell 45%, while domestic met coal volumes fell 39%, the company said in a July 29 report.

In the first half of the year, export coal volumes dropped 25% and domestic met coal shipments contracted by 32%, tracking weaker pig iron output in the US compared with electric arc furnace-based steel production using scrap.

In the export markets, while Europe and Asia are taking less US met coal, Turkey is buying more US met coal this year, more than doubling volumes in the January to May period year on year.

Traders and miners typically face higher freight rates from US ports to Turkey's main met coal discharge ports of Eregli and Zonguldak in the Black Sea, and Iskenderun in the eastern Mediterranean.

Compared with shipping coals to Rotterdam and other Western European ports, on top of a 5% import tariff in Turkey for US coking coal imposed in retaliation for Turkish steel tariffs in the US, lower costs may help make or break sales.

Operating strategies

US railroad CSX said last week that export met and thermal coal haulage in the second quarter fell 43% to 6 million st on low global prices, with domestic coal railing down 45% at 8.2 million st on lower industrial production and natural gas competition in the US.

With lower met coal export spot prices, logistical costs, including rail fees and terminal costs for barges, may become more important in establishing market and operating strategies for 2021. Higher cost coals may become uneconomic, with several high-vol mines idled, with some unlikely to find demand and price levels to restart.

Some US miners are looking at netback at the mine export index prices, based on rail rates, with expectations for higher seaborne spot coking coal prices in 2021.

In the met coal futures market, the 2021 contract was assessed on July 30 at $137.12/mt FOB, or a 22% premium over the August contract, based on S&P Global Platts assessments at the close in Singapore.

With higher met coal prices expected later in the year and through 2022 and US rail costs, interest in supplying at fixed prices into the North American market may translate into less flexibility in opening price and volume offers from 2020, after declines in 2020 pricing from last year.