Seaborne coal demand outweighs trade concerns

International hunger for higher-heat coal is supporting demand for US resources, but concerns about Washington's ongoing trade tensions with other countries remain, participants at the American Coal Council's 2019 Spring Coal Forum said today.

"The trade war is bad for energy, period. You lose market access and market development while creating economic friction," energy research firm Clearview Energy Partners managing director Kevin Book said. While trade concerns are easing "they are not going away entirely."

Coal exports as a percentage of US production were at their highest level in 35 years last year, S&P Global Platts coal analytics director Joe Aldina said. And buyers are absorbing the additional costs associated with tariffs.

Demand in 2018 for the US' high-Btu coal was nearly double that of 2016, said Ted O'Brien, US coal trader Xcoal Energy and Resources' manager of capital markets and marketing. While Indonesia was responsible for most of the global trade growth in 2018, the country's resources are largely low-grade coal and lignite, he said.

The demand for higher-quality coal likely will continue through 2020 and support exports, despite the current downtick in API 2 prices, O'Brien said.

O'Brien pointed to Asia, where "real demand growth is happening."

Demand in China and India remains strong. China continues to show demand for US metallurgical coal with the full knowledge that buyers will have to absorb a 28pc tariff, O'Brien said. He added that coal will likely become a bargaining chip for China as trade talks continue.

And India was one of the top destinations for US coal last year.

Mediterranean countries like Morocco and Egypt also are showing more interest in US coal. And Turkey could be a larger customer for US coal in coming years, after Ankara's trade dispute with Washington is resolved.

"In the short term, that tariff is definitely going to determine business, but in the longer term Turkey is a very bright market for the US," O'Brien said.

A host of other variables could influence the state of the US market. Global economic health remains the biggest underlying driver of coal demand, O'Brien said. And tight supply could support prices.