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US coking coal unfazed by Biden presidency

  • Market: Coking coal
  • 13/11/20

US mining firms expect Joe Biden's presidency to raise some obstacles for the coking coal industry, but there is confidence that infrastructure investment and a different approach to diplomatic relations will foster more favourable market conditions.

Job losses and mine closures in the last year or more, linked to a weak market meant that the Donald Trump administration failed to significantly raise coal employment as the sector had hoped. But support for the outgoing president in the major coal mining states of West Virginia and Alabama remained strong in this last election while Biden secured Pennsylvania by a slim margin of 0.8pc over Trump.

Meanwhile, mining firms appear largely unfazed ahead of Biden's presidency, with most of them focused on taking advantage of the recent surge in Chinese demand for low-volatile and mid-volatile alternatives to Australian coals amid an import curb.

Tighter regulations but limited obstacles

US mining firms expect tighter emissions controls and that permitting processes will be more rigorous, which could delay new projects and raise costs in some cases. "Emissions and stream protection and methane emissions will probably be revisited, but I do not expect a war on coal, and I do not expect financial weapons to be used against coal," one miner said.

In late 2016, Trump started unwinding regulations put in place by former president Barack Obama shortly after taking office. But market forces proved more powerful than Trump's efforts to support the industry thorough deregulation. Competition from lower-priced natural gas and energy plant shutdowns linked to Obama's mercury and air toxics rule kept the coal industry under pressure, and will continue to do so under Biden.

In the past few years, US coal mining firms had already begun a process of shifting towards focusing on the comparatively more lucrative and sustainable coking coal sector, as global steel production and demand continues to increase.

"Coal was already in big financial trouble during Trump's presidency", one mining firm said. Trump's presidency failed to significantly raise employment in the US coal industry, and coal production also fell over the period. The bituminous coal industry employed an average of 51,605 workers in 2019, only slightly up from 50,735 in 2016, while total coal production increased from 725mn st in 2016 to 773mn st in 2017, output only reached 703mn st in 2019, well below the 998mn st recorded in 2014. Total coal output in the US for the first half of 2020 was 260mn st, with second-half figures very unlikely to catch up with last year's amid continued production cuts and mine closures.

Trump's time in office had coincided with higher coal production and prices, bolstered in part by rising domestic demand but largely on the back of increased exports. For example, in March-April 2017, damage caused by Cyclone Debbie on Australia's Queensland Port drove up demand and prices for US coals dramatically. The Argus assessed US high volatile A price peaked at $273/t fob Hampton Roads in the second half of April 2017, compared with $119/t fob Hampton Roads today.

While the US coal sector is historically viewed as a swing producer over the years, unwillingness by financial institutions to associate themselves with fossil fuels, particularly coal, has also meant that access to capital for expanding mine capacity has been difficult for many firms. This slowed US coal output expansion despite the strong pricing environment in 2017-19.

The US exported 55.3mn st of coking coal last year, up by 35pc from 2016. But exports are still below 2011 and 2012 highs of over 63mn t. In the first nine months of this year, US coking coal exports fell to 27.99mn t from 37.06mn t in the same period of 2019, weighed down by widespread demand disruptions linked to Covid-19, particularly in Europe.

As far as US steel demand is concerned, Biden's intention to invest in infrastructure is a positive sign for US mining firms. Market expectations are that Biden will be able to pass some form of infrastructure bill and come to an additional stimulus agreement with Congress to drive recovery from the economic fallout of the Covid-19 pandemic. Either of those could boost steel demand and domestic coking coal demand as a consequence, by encouraging additional spending and steel usage that otherwise may not have occurred.

Improved diplomatic relations will help the industry

US coal exports have not returned to the high of 55.36mn t in 2018 after China introduced tariffs on US coals taking aim at Trump's pledge to put coal miners back to work and revitalise the industry, with every state in the Appalachia region apart from Virginia having voted for Trump in the 2016 presidential election.

Coking coal mining firms are optimistic about international trade relations under a Biden presidency."Biden will be a good diplomat," said one miner, "I believe he will try to work with allies to encourage countries to play by world trade rules, rather than going it alone as Trump has tried to do". "I do not expect strange taxes like there have been in the last few years, and it will be more complicated for countries to wage trade wars," another miner said.

There are also expectations that the Protectionist Section 232 tariffs on imported steel — one of the hallmarks of US trade policy under Trump — appear likely to be adjusted, but not eliminated, under Biden.

If Biden's administration contributes to a more peaceful international trade environment as mining firms expect, this would allow them to depend on continuing trade with traditional customers, while seeking opportunities with non-traditional customers.

It also remains to be seen if Biden will continue to build on the phase-one trade deal negotiated by the Trump administration. The removal of import tariffs have no doubt encouraged the recent spike in US to China coking coal trades.

But China has been slow to react to Biden's victory with a formal acknowledgement only issued today by Chinese foreign ministry spokesperson Wang Wenbin at a briefing in Beijing while President Xi Jinping has yet to offer public congratulations.

While there were earlier market expectations that China's impasse with Australia will not conceivably last beyond the anticipated seasonal peak in demand for the lunar new year holiday period in mid-February, uncertainty over when import curbs will be lifted are now less certain. The Argus assessed Australian premium hard coking coal price fell to a four-year low of $99.40/t fob today.

"We have not received any updates to the current situation. But it is safe to assume that any loosening of restrictions will not be seen until after the lunar new year celebrations in February next year," a north China steel producer told Argus last week. Chinese mills are taking a longer-term approach to re-establishing relationships with US suppliers, with discussions for cargoes heard to be extending well into deliveries for 2021.

US coal industrymn t
2014201520162017201820191H20
US coal production905811658701684638236
US coking coal exports54423748544828
Average employment (person)73,55164,80150,73552,03552,50751,60542,392

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