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illuminating the markets
Energy and commodity price benchmarking and market insights
US coals update: Changes and prospects in 2013 Washington, DC
Chris Newman, Editor, Americas Transportation & Coking Coal Molly Christian, Editor, Argus Coal Daily
6 March 2013
illuminating the markets
• Supply overhang still dominates US coal markets
◦ Production shifts away from high-cost Central Appalachia
◦ New specifications highlight rise of Illinois Basin, coking coal
• Exports may slow but remain bigger focus
◦ Port options proliferate despite slowdown
◦ Arbitrage window narrows for steam coals
• Indexation adapts to new reality
◦ Eastern rail rates link to coal indexation
◦ US Gulf, east coast FOB markets develop
◦ Heat and sulfur adjust to demand
2013: Year of transition
Copyright © 2013 Argus Media Ltd. All rights reserved.
• Report prices globally for
◦ Steam and coking coals
◦ Natural gas
◦ Emissions
◦ Transportation
◦ Power
◦ Refined products
◦ Crude
◦ Fertilizers
◦ Petrochemicals
• Over 400 staff globally
• Largest team of coal reporters in world
Argus Media
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US coal market fundamentals: Waiting on 2014
illuminating the markets
“2013 is going to be the year of
the inventory overhang.”
— CSX CFO Fredrik Eliasson
• To reach target level
o What is new normal for
fewer coal plants?
o Previous 140-150mn st
down into mid-130s to
mid 140s st
o Weather, natural gas
prices, producer discipline
Utility coal stockpiles seek new normal
Copyright © 2013 Argus Media Ltd. All rights reserved.
175
180
185
190
195
200
205
Jan-12 Apr-12 Jul-12 Oct-12
mn s
t
Source: EIA
illuminating the markets
Gas competition: Coal back from lows of 2012
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• Gas under $3.25/mmBtu
first nine months 2012
o Southern, AEP burned
more gas than coal
• Unconventional gas
weighs
◦ Another 7.5mn st of coal
equivalent each month
o Acts as a new coal basin
o Gas in storage may end
winter above 2 Tcf
80
110
140
170
200
30%
35%
40%
45%
50%
Jan-10 Aug-10 Mar-11 Oct-11 May-12
mn M
Wh
Coal generation Pc of total generation
US supply adapts to domestic demand pressures
illuminating the markets
Significant mining cuts in Central Appalachia
Copyright © 2013 Argus Media Ltd. All rights reserved.
• Gas, plant closures dent
CAPP demand and prices
• 2012 output -20pc from
2011 and 37pc below 2008
• Mining costs in the
$60/short ton range are
in line with spot thermal
prices, driving output
toward higher-margin
coking coal
40
65
90
115
140
25
35
45
55
65
Q1-08 Q1-09 Q1-10 Q1-11 Q1-12
$/st
mn s
t
Sources: MSHA, Argus
Production 12,500 Btu, 1.6lb SO2
illuminating the markets
• “We continue to focus on our highest-margin
metallurgical coal business while idling… some
lower-quality production.”
• “Exports used to be the tail and the domestic side
was the dog, but really as we move forward the
next two or three years it is going to be split.”
-Alpha chief executive Kevin Crutchfield
CAPP increasingly a coking, export steam supplier
Copyright © 2013 Argus Media Ltd. All rights reserved.
illuminating the markets
Northern App output down but seeks new buyers
Copyright © 2013 Argus Media Ltd. All rights reserved.
• Output feels pinch from gas, plant retirements o Volumes -6.3pc from 2008
• Better costs may extend domestic, export reach o Longwall costs in $30-
40/st range
o Sulfur discount good for export market
o Crossover, coking coal output through Baltimore
40
60
80
100
120
140
28.5
29.9
31.3
32.7
34.1
35.5
Q1-08 Q1-09 Q1-10 Q1-11 Q1-12
$/st
mn s
t
Sources: MSHA, Argus
Production 13,000 Btu, 4.5lb SO2
illuminating the markets
PRB had tough 2012, improves against gas
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• Output last year down 9.4pc from 2011 and 15.5pc below 2008
• High stockpiles keeping production under pressure, but PRB prices well against natural gas
• Exports a tougher move o Rail costs significant for
Canada export move
o USWC capacity tight
7
9
11
13
15
90
100
110
120
130
Q1-08 Q1-09 Q1-10 Q1-11 Q1-12
$/st
mn s
t
Sources: MSHA, Argus
Production 8,800 Btu, 0.8lb SO2
illuminating the markets
Exports bright spot for western bituminous
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• Very significant 2012 supply
response
• Output down 21pc from
2008, 4pc from 2011
• Long haul to east less
economic; Colorado unit
closures further cut demand
• An attractive export option
o Rail to USGC
o Rail to Mississippi
o USWC exports being done
25
40
55
70
85
9.0
10.5
12.0
13.5
15.0
Q1-08 Q1-09 Q1-10 Q1-11 Q1-12
$/st
mn s
t
Sources: MSHA, Argus
Production 11,700 Btu, 0.9lb SO2
illuminating the markets
Illinois basin bucks price, output trends
Copyright © 2013 Argus Media Ltd. All rights reserved.
• Low-cost longwalls adds capacity o Production up 26pc from
’08 and 9pc from 2011
o Coal Trading Association backs new OTC trading product
• Great export logistics o Rail to USGC
o Barge to Mississippi
o Sulphur watched
40
50
60
70
80
22
25
28
31
34
Q1-08 Q1-09 Q1-10 Q1-11 Q1-12
$/st
mn s
t
Sources: MSHA, Argus
Production Barge 11,500 Btu, 5lb SO2
US coal supply ‘pivots’ toward the world
illuminating the markets
Steam coal lifts US exports to record 126mn st
Copyright © 2013 Argus Media Ltd. All rights reserved.
• Thermal coal all of last
year’s export gains
o Steam +50pc yoy at 56mn
o Growth driven by Europe,
but Asia up a bit too
• Coking coal flat at 70mn st
o Rise in shipments to Asia
offsets declines to Europe
0
2
4
6
8
Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12
mn s
t
Source: US Census Bureau
Steam
Coking
illuminating the markets
Exports by major exits (122mn of total)
Copyright © 2013 Argus Media Ltd. All rights reserved.
*US shipper capacity
Great Lakes
Tonnage 5.8mn
Change -2%
Baltimore
Tonnage 19.1mn
Change -1%
Hampton Roads
Tonnage 49mn
Change 20%
New Orleans
Tonnage 28mn
Change 32%
Texas (seaborne)
Tonnage 2.7mn
Change 397%
California
Tonnage 1.5mn
Change 6%
Pacific Northwest
Tonnage 4.9mn
Change 0%
Mobile
Tonnage 10.7mn
Change 6%
illuminating the markets
Potential build-out over next five years
Copyright © 2013 Argus Media Ltd. All rights reserved.
West Coast
Ridley 5*
Westshore 5*
Gateway 15
Millennium 25
KM Westward 15
Ambre Morrow 8
California/other 6
Total 79
Great Lakes
Total 15
East Coast
CNX Marine 30
Curtis Bay 10
Pier IX 15
DTA 20
Lamberts Point 30
Other 1
Total 106
Southeast
McDuffie 16
Walter terminal 6
Charleston 3
Other ports 4
Total 29
Texas/New Orleans
IMT 16 Armstrong Coal 6 Burnside 7.5
United Bulk 22 LDH Energy 5-7 Other Nola 12
Convent Marine 24 Mid-stream 24 Texas 30
Total 148
US total
Grand total 377mn st
*US shipper capacity
illuminating the markets
Exporters starting to top-off Capesize vessels
Copyright © 2013 Argus Media Ltd. All rights reserved.
• Vulcan has
done two top-
off operations
at Mobile
• CSL preparing
for first top-off
at Mobile, says
adds 60,000mt
to load
illuminating the markets
API 2 price drop shuts out many US coals
Copyright © 2013 Argus Media Ltd. All rights reserved.
• Central Appalachian
coals having a tough
time competing
against less than
$90/mt API 2 prices
• High-sulfur Illinois
basin, Northern App
coals may be in
better position
60
80
100
120
140
Oct-11 Mar-12 Sep-12 Feb-13
$/m
t
US 12,000 Btu, less than 1pc sulfur fromHampton RoadsUS 11300 Btu, 3pc typical sulfur from NewOrleansCoal API2 index (cif ARA) Balance of weeknumber, No time stamp, index
Changes encourage new coal indexation
illuminating the markets
Railroads get flexible on export rates
Copyright © 2013 Argus Media Ltd. All rights reserved.
• CSX links export rail
rates to API 2 coal
prices
• Set as a percentage
• The ‘bid-ask’ on the
rate: railroad wants it
at 20pc, shippers
want at 15pc
illuminating the markets
International buyers more attuned to US prices
Copyright © 2013 Argus Media Ltd. All rights reserved.
• East and Gulf coast
terminals are key US
pricing hubs
• Spread between low-
and high-sulphur coals
closely watched in
USGC
illuminating the markets
And US sales more in tune with overseas buyers
Copyright © 2013 Argus Media Ltd. All rights reserved.
• US coking coal exports moving away from annual
contracts to quarterly pricing and spot sales
• Alpha, maybe others aligning Central App
production more with API 2/seaborne spec
• Possible addition of lower-heat FOB mine
assessment?
illuminating the markets
• Gas competition forcing US coal producers (outside the
Illinois basin) to cut output and restrict production to the
most economic ton
• US supply and buying practices more aligned with
international markets, including increased focus on spot
purchases and alignment of quality more with API 2
contract
• Coal and transport indexation changing to accommodate
higher exports, domestic gas competition
Summary
Copyright © 2013 Argus Media Ltd. All rights reserved.
Any questions?
Molly Christian Editor, Argus Coal Daily [email protected] +1 (202) 349-2883 Chris Newman Editor, Americas transportation and coking coal [email protected] +1 (202) 349-2876 1012 14th St. NW, Suite 1500 Washington, DC 20005 USA www.argusmedia.com
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