Some smaller eastern US thermal coal producers are struggling to compete at the current lower prices offered by larger companies as utilities weigh purchasing power over self-generating.
A number of small coal companies with higher-cost thermal coal operations in the Illinois basin and the Appalachias have accused larger producers in recent months of "undercutting" offers. Prices offered by some larger producers in the Illinois basin and Northern Appalachia are at least $5/short ton lower than those offered by higher-cost mining companies, according to some companies in those regions.
The smaller producers say they have lost out on potential deals because they cannot afford to lower their own offers. Instead, these producers,who did not want to be cited by name, have been scaling back coal output since the start of 2024 and are mainly focused on fulfilling existing contracts rather than bidding on new solicitations. One US utility said in early August that it did not receive any bids from smaller producers on its most recent request for proposals.
One major US producer acknowledged its offer prices are lower than its competitors, but it denied targeting smaller producers and said that the company would not offer coal at current prices if it could not afford it. The producer also stated that it is necessary to offer coal at the reduced prices in order to persuade utilities to dispatch coal-fired generation instead of buying electricity from grid operators.
For most of this year, power prices in the central US have been lower than they were in the same periods of 2023 because of restrained electricity demand at times and lower natural gas prices. The peak day-ahead price for power at the Indiana hub has averaged $36.16/MWh so far in August, down from $42.85/MWh in the entire month last year.
Some major utilities have increased their wholesale power purchases from a year earlier, determining that it is more economical than operating their power plants. For example, in the first six months of 2024, Tennessee Valley Authority bought 13,269mn kWh of electricity from the wholesale market, up by 21pc from the same period last year, according to filings with the US Securities and Exchange Commission.
Eastern US coal prices have mostly trended upward since mid- to late-June as hotter weather supported higher electricity, but they are still below 2023 and 2022 levels.
Market participants have said smaller producers in Illinois basin are most at risk of being forced to shut down operations.
The prompt quarter assessment of Illinois basin coal with 11,500 Btu/lb 5lb SO2/mmBtu was $42.60/st fob barge last week, compared with $49/st in the comparable week of 2023 and $195/st for the same week in 2022.
Northern Appalachian coal with 13,000 Btu/lb 4.5lb SO2/mmBtu was assessed last week at $51/st for prompt quarter shipments, compared with $51.75/st a year earlier and $200/st for the same week in 2022.
Central Appalachian coal prices were slightly higher than they were last year, with the prompt quarter assessment for CSX rail-originated 12,500 Btu/lb at $74.75/st last week, up from $70.75/st for the same week in 2023. But that was still a significant drop from $200/st in 2022.
Larger coal mining companies, particularly in the Illinois basin and Pittsburgh Seam, can already make a profit finalizing deals at the current price levels because they operate longwall equipment and super sections that make mining coal more efficient. But smaller producers that do not have access to this machinery typically have higher production costs and cannot afford to sell coal at the cheaper prices.
There is less of a price discrepancy between larger and smaller companies in Central Appalachia compared with other eastern US basins because it is more expensive to produce coal there. But some Central Appalachian producers that primarily sell metallurgical coal are still able to offer incidental coking coal production into the thermal market at a partial discount, which has contributed to keeping market prices below most producers' operation costs in the basin.
