Coal News and
Markets
Week of October 5, 2003
Coal
Prices and Earnings
(updated October 6)
Average spot
prices for reported coal purchases were mixed last week. There
was a second decrease in as many weeks in the Powder River Basin
(PRB) low-sulfur market, from $7.10 to $6.70 per short ton for
the 8,800 average-Btu product that EIA monitors (see below).
The Central Appalachia (CAP) compliance coal tracked
by EIA continued to trade at $35.80. Meanwhile, spot market
price increases were reported in Northern Appalachia (NAP),
the Illinois Basin (ILB), and the Uinta Basin (UIB). The spot
coal prices tracked by EIA for prompt quarter delivery, were
up by $0.90 in NAP, by $0.75 in ILB, and by $0.55 in UIB (Coal
Outlook, October 6, p 2).
What these
prices mean is debatable—and is being actively debated among
coal buyers, sellers, and analysts. Although the number of sales
last week was not extreme, there was a surge on Tuesday, October
7, in over-the-counter (OTC) trades for future delivery during
the rest of 2003 and early 2004. It is widely understood that
CAP premium coal supplies are simply not available for new spot
contracts; still, CAP producers and investors are busy trying
to restore production interrupted by longwall moves, geologic
problems, loading facility problems, and suspended deliveries
from CAP producers working through bankruptcy problems. And,
there is a significant number of Eastern power producers, coming
off a mostly mild summer and currently in the low-demand “shoulder
months,” who are still reassessing their current coal inventories
and researching weather derivative analyses, trying to anticipate
winter generation demand. Some may forestall major coal buying
until early 2004. On the other hand, it is not known whether
some of the upward pressure on NAP, ILB, and UIB spot prices
may reflect CAP and PRB low-sulfur coal consumers transferring
unmet demand, through one-on-one trading or OTC deals, to other
coal supply regions. It seems unlikely that much unmet CAP coal
demand in the East will be alleviated with imported coal (see
below).
The latest CAP price
is 25 percent, or $11.84, below the 2001 peak price of $47.64
per ton. The NAP price is 29 percent, or $11.25 per ton, below
the 2001 peak. ILB prices and UIB prices are 22 and 21 percent
lower, respectively, than this time 2 years ago, and PRB prices,
at $6.70 per short ton, now stand 47 percent below the peak
average price of $12.75 reached in May 2001.
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Spot prices
of low-sulfur CAP coals have been trending upward since the
week ended June 21, 2002, when the EIA-indexed coal sold briefly
for a low $26.50 per short ton. That rise in CAP coal prices
coincided with a dawning recognition among CAP coal buyers that
recent supply problems may persist, at least temporarily. In
addition to depletion of individual reserve blocks and the geologic
problems that develop when mines approach the limits of minable
coal, some new contracting has been is stymied by the five largely
CAP coal companies in bankruptcy proceedings, and as American
Electric Power’s coal properties—chiefly assets acquired from
bankrupt Quaker Coal Co. in 2001—are still up for sale after
proving to be a drain on earnings (Coal Age, “Official: AEP
Coal on Block,” June 2003). Those six companies in 2002 produced
71.3 million short tons (mmst) an amount equivalent to 28.7
percent of CAP production that year (“Survivability? Thrivability!”
presentation by Jonathan Barr, Arch Coal, Inc., at Platts Coal
Marketing Days, September 22-23).
The CAP price is now $0.80 above the $35.00-per-short-ton minimum
f.o.b. mine price that major coal producers earlier this year
called essential for new contract sales and to rationalize reopening
of idled mines. Although the spot prices are up, producers report
that buyers have been reluctant to contract for term coal. Many
more solicitations have been issued, reportedly, than have been
completed as contracts (Coal Daily, September 15, pp 5-6). Producers
now expect to see some additional term coal contracts this year
but expect other buyers, betting on a their current stocks and
a mild winter, to put off new commitments to early 2004.
. PRB spot prices have risen more slowly than CAP prices, but
the PRB producers were able to increase output if and when demand
warrants and prices are right. Because of lower incremental
mining costs, PRB spot prices, at $5.70 per ton in July, needed
only to rise by $0.50 or $1.00 to significantly improve profits
for PRB producers. On the other hand, even if higher PRB prices
indicate growing buyer interest in securing or supplementing
this winter’s supplies, additional coal may not be easily had.
As one PRB producer told U.S. Coal Review (September 22, p.
7), “We’ve done everything we can,” including “some pre-shipping
in the first half,” but “there’s no more room to put more railcars
in there.” Confusing current observations, some CAP and PRB
coal shipments have been curtailed during the past 4 weeks,
not because of coal unavailability but because during this transitional
period power producers take some generators off line for planned
maintenance.
In general, in over-the-counter
(OTC) coal markets, pricing has been bullish. OTC transactions
are arranged quickly, via brokers, and include both deals that
will close in the short term with physical coal delivery, and
financial deals used to hedge against future price changes.
Although currently representing less than half as much volume
as spot coal sales, the OTC market tends to react rapidly to
perceived changes in future prices or availability. Sometimes
the OTC prices anticipate changes in spot and, eventually, term
coal contracts, but traders can be wrong in regard to the magnitude
or the timing of price changes, or both, or even in regard to
the direction.
Coal supply
transactions on the NYMEX
have
stagnated with virtually no trades settled since June 24. After
April 4, 2003, when NYMEX moved its coal futures trading from
open outcry to it electronic trading platform, no significant
changes occurred in either trade volumes or prices. Near-month
settlement prices rose gradually from $28.00 per short ton to
$32.20, where they remained during the first 3 weeks in June—a
pattern similar to activity earlier this year. Volumes from
April 4 through June 24 averaged between 100 and 300 transactions
per week. Trade volumes have been at zero every day since July
2 for the near month as well as for downstream contract dates.
Near-month settling prices rose sharply, however, from $33.75
per short ton on August 21 to $37.25 on September 2, before
subsiding. The latest final price was $36.10 per short ton,
with no transactions.
Coal
Production (updated October 10)
Estimated
coal production for the week ended October 4 was 21.4 million
short tons (mmst). This was 0.2 mmst, or 0.8 percent higher
than in the previous week and 3.5 percent above the comparable
week in 2002. Year to date U.S. coal production, which incorporates
both first and second quarter surveyed data from the Mine Safety
and Health Administration (MSHA), is estimated at 815.0 mmst,
or 2.3 percent behind the corresponding total for 2002. West
of the Mississippi, 2003 production is behind 2002 by 0.4 percent,
while east of the river it is behind by 4.5 percent, year to
date. Wyoming production (of which 96 percent normally comprises
the PRB) is currently estimated as 282.5 mmst, cumulative through
October 4. Wyoming year-to-date coal production is 0.7 percent
ahead of the equivalent 2002 period.
The graph of U.S. Monthly Production below includes monthly
coal production estimates for the first nine months of 2003.
January through June production are revised estimates using
second-quarter mine-level reports from the Mine Safety and Health
Administration (MSHA). Production for July through September
is from preliminary EIA estimates. The January through September
U.S. estimates for 2003 total 802.5 mmst, or 2.2 percent behind
the same period of 2002.
Coal
Imports (updated October 3)
There was a time
when U.S. coal producers worried that imported coal might threaten
the domestic industry. Times have changed. Several large U.S.
companies today own shares in foreign coal mines and sell imported
coal in the United States and other countries. From the customer’s
point of view, imported coal has been an option for power plants
or industries situated well for delivery-- usually at attractive
prices—but some have been reluctant, or found infrastructure
lacking in the tidewater. This year there seems to be increased
discussion of the import option among coal buyers, as supplies
of Central Appalachian (CAP) coal have diminished and prices
have increased
The timing of domestic customers, for the near term at least,
was not good. Prices for international coals for the European
market rose steadily this past summer, followed by rising shipping
rates, as the long, hot summer in Europe spurred coal demand.
First South African coal sold out for the year; now it appears
South American coal is no longer available. Southern Company
learned last week that it responded too late to an offer of
South American coal for 2004 delivery, from major U.S. producer,
Drummond Coal Company. In fact, Drummond, Glencore, and perhaps
Cerrejon are fully committed for the rest of 2003 (U.S. Coal
Review, September 29, pp 1, 13). Some eastern power generators
may have been considering picking up imported coal to replace
some of the CAP coal that is in short supply.
Ironically,
taking the longer view, Ernie Thrasher, President of AMCI Export
Corporation, explained why the U.S. coal industry should welcome
the still-limited inroads made by coal imports in recent years
(Imports—Threat of Opportunity?? at Platts Coal Marketing Days,
September 22-23). Initially, consumers gave Colombian, Venezuelan,
and Indonesian coals a second look because of good prices, because
they offer low- and very low-sulfur products, and because they
offer some supply diversity during concerns over CAP reserve
base. Prices are up and currently more volatile in international
coal markets, but the low-sulfur coals from South America and
Indonesia can in the longer term help keep some domestic mines
producing. The two coal types can be blended to “manufacture”
blends that meet the emission limit of 1.2 pounds of sulfur
dioxide per million Btu, or just to keep it within ranges covered
by emission allowances. Because of their Btu levels, some imported
coals also react well in reducing nitrous oxide emissions. Mr.
Thrasher noted that imports can help assure customers that sufficient
quantities and qualities of coal will be available to meet environmental
requirements. As a result, operators are more likely to stay
committed to burning coal in their power plants.
At
the same conference, speakers wondered at the limited interest
eastern railroads have shown in rail transshipment of waterborne
coal imports. Ports such as Hampton Roads/Norfolk and Baltimore
have existing coal docks, and in other South Atlantic and Gulf
Coast ports smaller bulk commodity docks could accommodate sub-regional
shipments. In the long term, imported coals will be “the most
obvious choices” for most rail-served coal-fired generators
in the southeastern United States (Coal & Energy Price Report,
October 7, p 3).
View Earlier Coal News and Markets Reports
Contact(s): Rich Bonskowski
Phone:
202-287-1725
Fax:
202-287-1934
e-mail:
richard.bonskowski@eia.doe.gov
Bill
Watson
Phone:
202-287-1971
Fax:
202-287-1934
e-mail:
william.watson@eia.doe.gov
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