Commodities & Metals

US Coal Exports to Drop by 10 Million Tons This Year, Over 8 Million More in 2020

Exports of U.S. thermal coal used primarily to generate electricity is forecast to drop by 10 million metric tons (mt) in 2019 to just 44 million mt. In 2020, thermal coal exports are expected to drop by another 8.6 mt.

The estimates were released late Tuesday by S&P Global Platts Analytics. The analysts also noted that exports were down by 4.3 million mt year over year in the first six months of this year. Both Central Appalachian and Northern Appalachian coal are uncompetitive in the Atlantic Basin market centered on Amsterdam-Rotterdam-Antwerp, Platts noted, and Illinois Basin coal is competing with Russian and Colombian coal for market share.

Colombian coal exports have dropped by 4.9 million mt in the first seven months of 2019, and Platts expects the total to reach a decline of 8.0 million mt for the full year. Last year Colombia exported about 81 million mt of thermal coal. For 2020, rising freight costs are expected to make Colombian coal less competitive with other Atlantic Basin suppliers.

The combination of U.S. and Colombian export declines is expected to support prices in the Atlantic Basin.

In the Pacific Basin, due to weak electricity and coal demand growth in China, thermal coal prices have reached their lowest levels in three years. The Pacific region is oversupplied by higher exports from Indonesia and still-solid exports from Australia and Russia.

Platts expects that thermal coal exports to the Pacific Basin will decline as Chinese and Northeast Asian import demand falls for the rest of this year.

While thermal coal exports have come under pressure for years, U.S. metallurgical (met) coal used in steelmaking has also experienced recent pricing pressure. Unlike thermal coal pricing, the decline in demand for met coal is down to uncertainty in the industry over potential Chinese import restrictions.

Coal mining stocks took a hit last month when analysts at Jefferies downgraded seven coal stocks from Buy to Hold because falling coal prices threaten the coal companies’ ability to maintain their dividend payments. Unless coal miners can buy the affection of their shareholders, there is really not much to like about the long-term prospects for the coal industry.

Peabody Energy Co. (NYSE: BTU) traded down about 6% Thursday, after issuing a statement confirming what Platts analysts said earlier this week: “For the full year of 2019, recent trends suggest capital expenditures and seaborne coal volumes are expected to come at the lower end of the targeted annual range, with metallurgical coal costs now expected at the higher end of the annual range.”

Peabody said it expects third-quarter results to be “materially lower” sequentially. An accident at a joint-venture Australian mine claimed one life in late June, and a delay in restarting operations is expected to cost the company $30 million to $35 million in lower third-quarter earnings. Prices for seaborne [export] met and thermal coal are also lower.

Shares of Peabody traded down more than 7% at $17.27 in the noon hour Thursday, in a 52-week range of $17.10 to $44.71. The consensus 12-month price target on the stock is $26.75.

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