Asian thermal coal markets are likely to remain oversupplied, potentially causing trouble for western US exports, consultant Andrew Blumenfeld said yesterday.
Despite weak prices, thermal coal producers in Australia and Indonesia are unlikely to pull back production, Blumenfeld, who is head of market analytics at Doyle Trading Consultants (DTC), said yesterday at the American Coal Council's 2019 Coal Market Strategies conference in Utah.
The Asian market has been oversupplied for a number of months. At least some of the oversupply stems from restrictions China imposed on Australian imports earlier this year. In the aftermath of those limitations, Chinese imports of Russian coal rose, and Australian producers were forced to look elsewhere to place their products.
Other producers that typically export to Atlantic markets also are turning more attention to Asia as cheap natural gas limits US and European coal-fired generation and coal prices. Coal sold at European-delivered prices would be unprofitable for US producers, Blumenfeld said.
But Australian and Indonesian supply holds a cost advantage for Asian buyers over US production because of the proximity to those customers. Prompt two-month shipments of NAR 6,000 kcal/kg coal out of Australia were priced around $67.80/metric tonne fob Newcastle last week and GAR 5,000 kcal/kg Indonesian coal was around $47.10/t.
US western bituminous and Powder River basin coal would land in Asia at higher prices than those given the increased cost of shipping coal over a longer distance.
Western bituminous coal typically is not profitable to sell in Asian until prices are above $80/t. While most producers have said that they are hedged through the rest of 2019, low pricing at New Castle will begin to bite in 2020.
"I think even some of the larger producers in Utah and Colorado are going to have to look at scaling back production," Blumenfeld said.
Argus has recently assessed the prompt year API 5 index for NAR 5,500 kcal/kg loading out of Newcastle at $55.50/t.
A stronger dollar is aiding Australian and Indonesian producers' additional cost advantage.
In addition, operations at Australian mines also appear to be improving, Blumenfeld said.
"There has been quite a bit of recovery from a few down years in Australia, and I think that things are looking like they are running pretty well," Blumenfeld said. And there is a large amount of crossover coal capacity in the Hunter valley in Australia that producers could sell into thermal coal markets if steam coal prices improve and metallurgical prices continue to weaken.
Western US producers likely will be more reliant on export markets to sustain operations in coming years. The 1,800MW Intermountain Power Project, which consumed 2.4mn short tons (2.35mn metric tonnes) of western bituminous coal in 2018, is slated for retirement in 2025.
In the Powder River basin, Cloud Peak Energy's Spring Creek mine in Montana shipped 4.6mn st of coal to Asia through the Westshore Terminals in Canada in 2018, according to a Cloud Peak filing with the US Securities and Exchange Commission. That was roughly one-third of the mine's sales last year.
