By Brooklyn Guillory, Argus Media Ltd.
Emerging markets
The US has developed into a crucial base supplier of coal to European, South American and Asian markets hungry for reliable and competitively priced tonnage. The shift differs from other recent export booms, when coking coal fueled the surge. Now, demand for US steam coal is jumping, even as new environmental rules make generators here look to alternative energy sources.
More and more South African coal is headed to Asia, raising prices for that supply and encouraging European generators to seek alternatives from Central Appalachia and the Illinois Basin. Meanwhile, US producers including Peabody Energy, Foresight Energy and Cloud Peak Energy are cementing partnerships with buyers in China and India, which will ensure these trade links continue in coming years.
And a growing spot market for US coal shipments has emerged. The seaborne markets on the East Coast at Hampton Roads and the Gulf Coast at New Orleans have developed into top markets for US coal trading, growth reflected in four new Argus indices of coal prices in the region. Participants in the FOB New Orleans and FOB Hampton Roads markets say price discovery in these areas helps them assess opportunities and risks in the US export market.
There is plenty of reason for producers to test the waters on exports, if not to dive in. During the first five months of 2011, US coking coal exports grew 17 percent from a year ago to 29.2mn short tons, according to US Census data. Steam coal exports grew at an even faster pace, doubling to 15.3mn st between January and May from the same period last year.
Fortifying positions
The rest of the year is expected to be just as strong, with industry members positioning themselves to take advantage of these new markets.
Peabody Energy has long had a significant global footprint, and in the second quarter pointed to booming export demand for both coking coal and thermal coal. “We are increasing our Powder River Basin shipments this year from the US Gulf and West Coast and we recently sold Illinois Basin coal to India,” Greg Boyce, Peabody’s chief executive, said. India is now the world’s fastest growing importer, with its thermal coal imports up 45 percent year to date, he noted.
Peabody also expects exports to grab a larger slice of its output from the Powder River Basin (PRB). PRB production will become “increasingly valuable” as a backfill in US markets, replacing other production shifted to the seaborne markets.
Plenty of Peabody’s PRB coal is likely to be exported from the proposed Gateway Pacific terminal at Cherry Point, Washington, where the company has a 24mn metric tonne/yr throughput agreement. In the meantime, the company is expanding its commercial discussions with Asian customers likely to receive exports from Gateway.
Follow Us: