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Demand for US metallurgical coals remains "fragile" despite long-term growth forecasted for worldwide seaborne markets, a major exporter of eastern US coals said Monday.

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"Demand for met coal remains fragile as producers and consumers struggle to generate profits," Jack Porco, president and chief commercial officer of Xcoal Energy and Resources, said at a Platts Coal Marketing Days panel discussion in Pittsburgh.

Xcoal, based in Latrobe, Pennsylvania, markets seaborne coals for two major clients, Consol Energy and Rosebud Mining, both producers of Northern Appalachian coal based in the Pittsburgh area.

The fragility in the markets lies in a domestic steel industry that hasn't quite recovered from the recession, US met coals discounting from global coking coal benchmark prices and continued oversupply from major competitors such as Australia.

Further, Porco pointed out, emerging suppliers -- especially Vale and its nascent coal operations in Mozambique -- threaten to flood global markets with more coal, especially when Vale completes a rail terminal in that southeast African nation.

Porco said he expected the Vale terminal in Mozambique, which has a coastline on the Indian Ocean, to be in operation in 2014-2015. Then, the Brazil-based Vale will be able to move "substantial" coal volumes.

But Mozambique "still won't be the low-cost producer" with costs at about $140/mt, Porco said.

Meanwhile, while premium low-vol Asia Pacific prices have risen to the high $160s/mt CFR in recent weeks, "US low-vol and high-vol numbers have been relatively flat" for the last seven months, Porco said.

Porco noted that US Atlantic prices are discounted from the benchmark price.

Indeed, when panel moderator Julien Hall, Platts team leader of markets, asked the panel members whether US met coal producers were "totally out of the woods" with the higher benchmarks, the audience chuckled.

Porco answered, "I personally think we're not out of the woods yet and $152 is good, but it's not great ... Now, the domestic [steel] industry is in the middle of negotiations and we need to see where those prices go." Meredith Bandy, coal and steel research analyst at BMO Capital Markets, said a US steelmaker recently indicated to her that prices delivered to the manufacturer's coking plant had trended in its favor.

The steelmaker's delivered cost for an average-quality coking coal blend in 2012 was $188/st and was $153/st in 2013, she told Platts in an interview on the sidelines of the conference.

A typical North American coke plant will use a low-vol, a medium-vol and one or two high-vol coking coals in its blends, said Daniel Horn, Alpha Natural Resources' vice president of metallurgical coal sales.

Domestic coking coal buyers and coke plant technicians are under increasing pressure to look for value in coking coals and other raw materials because the "steel business is bad," he said, so they are looking for the "crossover" or "high-vol B" coals that typically would go to thermal markets but can be switched to coking or PCI markets as demand warrants, he said.

Horn noted that high-vol B usually has a 30-38% volatilities range.

Horn also said -- emphasizing the panel's recurring theme that more eastern US production needs to be idled -- that Alpha's portfolio has been reduced from 150 mines when it acquired Massey Energy in 2011 to 107 "just a few months ago" and further down to 88 with the company's recent program of production cutbacks.

--Steve Hooks,
--Edited by Richard Rubin,