Higher Australian thermal coal prices have opened a window for Western Bituminous coal producers, but it has not been enough to counter an ongoing decline in domestic utility demand, sources said Monday.
While Asian and Latin American demand has increased due to high Australian thermal coal prices, domestic demand has plummeted and will likely continue to stifle production, a western coal producer said.
"The domestic side of the business is static and falling," the producer said. "The export market is providing a welcome diversion from that, but not really much more demand at these high prices."
The producer has seen increased interest from Asian and South American utilities, but is not shipping more coal as a result.
"We are exporting the same amount of coal that we had forecast," he said. "There is increased interest, but I don't think we're seeing broad interest with the curve rising as it has."
Australian FOB Newcastle 5,500 kcal/kg NAR seven-45 day coal prices have increased 17% over the past month while 90-day prices have risen 32%. S&P Global Platts assessed the seven-45 day physical price at $77.70/mt Monday, and the 90-day physical price at $99/mt.
A second western coal producer reported two Cal 2017 deals totaling 200,000 st with Asian utility customers. Netback prices were in the low $30s/mt, he said.
"This is definitely a Newcastle move -- there is no doubt," the producer said.
Colorado's roughly 11,300 Btu/lb heat, low ash coal fares well among Japanese buyers compared with Newcastle thermal coal because there is less ash disposal required, he said.
The challenge for Colorado and Utah producers will be finding export capacity at West Coast ports of Long Beach and the San Francisco Bay Area, he said.
TWENTYMILE MINE DROPS PRODUCTION 76%
Colorado and Utah third-quarter coal production totaled 2.8 million st and 3.2 million st, respectively, down 1% and 7% compared with the second quarter, and down 36% and 16% compared with the year-ago quarter, the latest data from the Mine Safety and Health Administration showed.
In Colorado, production at Peabody Energy's Twentymile mine dropped 76% quarter on quarter to 230,764 st. The decline was likely due to a longwall move to a different seam, a second western coal producer said.
Citing an upcoming quarterly filing, Peabody declined to comment.
The largest production increase in Colorado occurred at Arch Coal's West Elk mine, which produced 1.3 million st in Q3, up 132% from Q2, but still down 21% from the year-ago quarter.
In Utah, production at Bowie Resource Partners' three mines dropped 11% to 2.3 million st in Q3. Production at the Skyline and Sufco mines dropped 15% and 10%, respectively, while the smaller Dugout mine's output increased 11%. The slow decline in demand will likely lead to industry consolidation in 2017, the first producer source said.
"Some players are a little more stubborn waiting for the market turnaround," the source said. "There isn't going to be a turnaround. The market is in slow decline."
While domestic utility demand has slipped for both Colorado and Utah coal, industrial demand has picked up.
Recent deals totaling over 100,000 st were concluded in the $39-$40/st for Cal 2017 business, the first producer source said.
"What we've seen in the last couple of weeks is some industrials coming out to begin negotiations," he said.
Platts assessed Utah's 11,500 Btu/lb thermal coal at $39.50/st and assessed Colorado's 11,300 Btu/lb thermal coal at $30/st. Both assessments were up $2 from the last assessment.
