Coal News and MarketsWeek of July 13, 2003The Coal News and Markets Report provides information similar to that in the Coal Section of the former Energy Situation Analysis Reports on EIA’s web site, last posted on March 13, 2003. We hope to preserve the essence of the Coal Section and provide up-to-date coal information not always found in mainstream press and broad-spectrum energy news sources. Coal Prices (updated July 18) After a steady
decline, indexed coal in the other three basins rose slightly
the week ended July 4. For the week ended July 11, the index
prices plotted by EIA have not changed. NAP coal remained at
$27.10 after 13 straight weeks at $26.80. ILB coal stayed at
$23.75 following 7 weeks at $22.75. UIB coal continues to fetch
$17.50 following 7 weeks at $17.05 (see graph below).
Overall, near-term coal prices are flat because coal demand has been cool—much like the rainy weather in the South and East so much of this spring. Producers’ hoped-for revivals in coal demand as summer approached have not materialized. Flat prices for current and next quarter NAP (Pittsburgh seam) coal have not risen because of the mild weather in the first half of the year. Many buyers have continued to delay major coal-buying commitments in light of prevailing cash shortages (Energy Argus Coal Daily, July 7). High natural gas prices have cut into cash reserves at power producers that use gas; if those producers also own coal units, this may have delayed coal buying and spurred careful management of existing coal stocks. The slow buying also affects PRB coal. As a result, Wyoming production is about 1 percent behind the corresponding year-to-date in 2002 (although not as much, as the 8 percent decline for Appalachian coal). The low PRB prices are also attributed to mild weather in the Midwest and South earlier this year. In the PRB, however, there is more activity in new coal purchase solicitations, some of which are unfulfilled. Some market principals in the region believe that a surge in solicitations and prices can still happen this fall or early next year (Energy Argus Coal Daily, July 7). Both coal producers and coal synfuel partnerships are following closely any news from the Internal Revenue Service (IRS) as it reassesses its past Private Letter Rulings (PRL’s) on coal synfuel tax breaks under Internal Revenue Code Section 29 (Coal Outlook, July 14). Most of the coal processed and sold as synfuel (83 million short tons in 2002) came from CAP mines and was sold to consumers at prices less than for fresh-mined coal from the similar mines, thanks to the offsetting value of the IRS tax credits. The consequences are attractive prices for consumers with access to synfuel, depressed prices for competing fresh coal producers, and in some cases economic subsidies for coal producers whose fresh coal might otherwise be too expensive to compete. Based on
a 1978 law designed to promote innovative technologies and reduce
dependence on foreign oil, the tax breaks grew due to inflation,
Congressional amendments, and IRS interpretations of the law.
By 2002, Appalachian bituminous coal processed by qualifying
plants could earn Federal income tax credits of $23.82 to $25.99
per short ton (Mark Morey, RDI Consulting, at Energy and Mineral
Law Foundation Winter Workshop on Energy Law, Marco Island,
FL, February 13-15, 2003). The critical question is whether
IRS will now rule that many of the techniques being used do
not create significant chemical change in the feedstock coal,
required to earn the tax break. If so, CAP coal producers could
demand higher prices. What’s more, without the tax breaks, some
of the marginally economic coal producers for synfuel conversion
may become unprofitable and close down, putting further upward
pressure on Eastern coal prices. Coal Production (updated July 18) Estimated
coal production for the week ended July 12 was 19.0 million
short tons (mmst). This was about the same as the 18.8 mmst
in the previous week (which included the Independence Day holiday)
and 3.0 percent above the comparable week in 2002. Weekly production
in July was 1-2 mmst lower than in June because of concurrent
miners’ vacation at many mines throughout the country. Year
to date, U.S. coal production is estimated at 561.9 mmst, which
is 3.7 percent behind the corresponding total for 2002. West
of the Mississippi, production is down by 1.2 percent, while
east of the river the decline is 6.8 percent.
Imports (updated July 18) Spot coal traders report that interest is up among U.S. coal buyers for imported coal because of a shortfall currently in CAP coal for short-term deliveries. This along with international supply imbalances have driven up the price for Colombian coal to $30.10 per metric tonne. Freight rates to the U.S. east coast or Gulf coast are not published but, as an example, the rate is about $9.75 per tonne to Amsterdam. In early May, Colombian coal was selling for $25.90 per tonne f.o.b. dockside but since then lower-priced South African coal has sold out for the year putting Colombian coal in a position to take advantage of “backwardation” in the international coal market through at least the first quarter of 2004 (Coal Daily, July 14). Backwardation is a market where spot prices exceed forward prices and might indicate an imminent shortage.
Contact: Rich Bonskowski Contact: Bill Watson
|
