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Low CIF ARA thermal coal spot prices threaten US export volumes: Peabody

European-delivered CIF ARA thermal coal prices will need to increase significantly to incentivize US producers to continue to export volumes into the Atlantic market, a senior executive at US miner Peabody Energy said late Tuesday.

Speaking at the Coaltrans UK conference in London, Christopher Hagedorn, president Asia & Trading at Peabody Energy, said current CIF ARA price levels "make it very difficult for US exports to price into this market."

He added that that while some US exports remained economic into Europe, "the price signal necessary for additional capital investment and to book new tons is going to have to be significantly above today's current API2 levels," adding that the price rise would need to be "double digit for sure."

Platts assessed the 15-60 day CIF ARA spot price basis 6,000 kcal/kg NAR at $80.14/mt Tuesday, while the FOB US East Coast 6,500 kcal/kg NAR assessment was $81.25/mt, translating to $75/mt on a 6,000 kcal/kg NAR basis.

With USEC-Rotterdam Panamax spot freight assessed by Platts at $12.90/mt the same day, US exported thermal coal is theoretically $7.76/mt away from pricing into the European spot market.

Hagedorn told the conference that his personal view was that, over the last 12-18 months, the majority of US exports had been on the back of previously made decisions, "whether it's hedging at higher price levels, or locking in rail or port take-or-pay commitments."

He said that total US coal exports in 2013 were 115 million st, roughly split between thermal and metallurgical coal.

Hagedorn said that with US coal exports falling in 2013 due to market price declines, he expected export volumes to continue to shrink this year "but not precipitously."

"We believe that US exports will remain a strong contributor to the Atlantic seaborne market and longer term, as US West Coast terminal capacity is added, they will have a meaningful impact on Pacific markets as well," he said.

COAL STILL 'COMPETITIVE' IN US

Hagedorn said that coal remained a competitive fuel in the US market, and that recent media stories of a precipitous decline in its share of the country's generation mix due to the shale gas revolution were wildly exaggerated.

He said that in 2012 -- when spot gas prices sank to just below $2/MMBtu -- coal's share of the US generation mix fell 7% on-year to 33%.

However, he said that in 2013, with gas prices averaging around $3-3.50/MMBtu for most of the year, coal-based generation increased by 40 million st, taking market share back to almost 40%.

He said that US coal producers were constantly faced with the argument that the country was forced to export coal cheaply because it was awash with energy.

"Coal is very competitive in the US even with gas prices at $3.50/MMBtu -- there's a big misnomer in the market about the competitiveness of coal versus shale gas in the US, where gas prices are the lowest in the world," he told delegates.

Source: Platts