Coal Age

JAN-FEB 2019

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0, 0, 0, 0, 0,00 January/February 2019 www.coalage.com 21 forecast survey 2019 continued Kentucky, coal production increased among the major coal-producing states. Production in West Virginia increased 4 million tons to more than 96 million tons after increasing 10 million tons in 2017. Production in Indiana increased more than 8% to nearly 34 million tons. Illinois coal production grew slightly (1.4%) to 48.9 million tons. On a percentage basis, Alabama posted the biggest increase in coal production (14.1%), growing from 12.8 million tons to 14.6 million tons in 2018. Kentucky, however, continued to slide as the commonwealth's production dropped 5.7% in 2018 from 41.7 million tons to 39.2 million tons. That comes on the heels of a 2.1% decrease in 2017. Total U.S. electricity generation rose 4% in 2018, while coal demand fell 4%, according to the U.S. Energy Informa- tion Administration (EIA). Year-to-date coal consumption for power generation (November 2018) stood at 580 million tons, compared to 605 million tons at the same point in 2017. Once again, the 25-million-ton differential between 2018 and 2017 emerges. The EIA also reported total coal inventories at U.S. power plants stood at approximately 104 million tons at the end of November 2018, down by approximately 27% from the same pe- riod a year ago, and the lowest end-of- November total inventory tonnage level since 1997. Year-to-date through the end of No- vember 2018, coal exports totaled 106 million tons compared to 87 million tons at the same point in 2017. The U.S. is exporting on average about 9.7 million tons per month, which will take total U.S. exports up to 116 million tons for 2018, which would be 19 million more tons than the 96 million tons in 2017. Of the that YTD export mix, 56.6 million tons were metallurgical-grade coal com- pared to 50.2 million tons at the same point in 2017. A total of 49.8 million tons of steam coal were exported ( YTD November 2018) and that compares to 37 million tons during the same period in 2017. Spot prices for coal have improved in the East, but remain soft in the West (see Figure 4). Reaching its highest level in four years, spot prices for Central Appalachian coal improved to $81.40/ ton by the end of 2018 from $59.85/ ton in 2017. Spot prices for Northern Appalachian coal also increased to $63.75/ton from $46.20/ton at the end of 2017. Spot prices for Illinois Basin coal increased to $38.95/ton in 2018 to $32.60/ton in 2017. Prompt prices for Powder River Basin coal decreased from $12.10/ton to $11.95/ton. Similarly, prices for Western Bituminous decreased slightly from $41.10/ton to $40.40/ton. Prompt prices for premium hard coking coal remained high in the fourth quarter, averaging $221/ mt. The fourth-quarter index settle- ment price for premium hard coking coal was $212/metric ton (mt) com- pared to $192/mt in 2017. Pricing for the low-vol PCI product also contin- ued its strength, with a fourth-quarter 2018 benchmark settlement of $139/mt compared to $127.50/mt in 2017. Look- ing ahead to the first quarter 2019, the low-vol PCI benchmark price has been set at $141/mt. Coal competes head-to-head with natural gas and its use for U.S. electric- ity generation largely depends on pric- es. The price of natural gas delivered to electric power plants averaged $3.42 per million British thermal units (Btu) in 2018, compared to $3.02/MMBtu in 2017. In the past, Peabody Energy said on average, every $0.20/MMBtu move- ment in the price of natural gas equat- ed to an approximate 25-million-ton change in U.S. coal demand over the course of the year. Survey Says Coal Age contacted 500 professionals, who mine and process coal, and received 49 completed surveys. The majority of them (84%) produced bituminous coal. Subbituminous, lignite and anthracite accounted for 5%, 8% and 3%, respec- tively. As far as production capacity, most of the respondents represented medium-size mine operators (mining 1-5 million tons, 46%), followed by large (more than 5 million tons, 39%) and small (less than 1 million tons, 14%); 41% described themselves as surface coal operators exclusively, while 38% said they only operated underground mines. The remainder (19%) said they worked for a company that mined coal using both surface and underground techniques. Similar to past years, most of the respondents said their coal was shipped to electric utilities (46%). The remainder said their coal was destined for steel mills (27%) or industrial boil- ers (27%). Power generation remains the overwhelming use for the majority of U.S. coal production. Going into 2019, the survey revealed that coal operators were still optimis- Figure 3 — U.S. Coal Production, 2008-2018 (million short tons) 1,400 1,200 1,000 800 600 400 200 0 2008 2010 2012 2014 2016 2018 Source: Energy Information Administration Figure 2 — Capital Expenditures How will the mine spend the money? 0 10 20 30 40 50 60 70 80 New Equipment 18% Mine Development 16% Equipment Upgrades 12% Permitting & Bonding 11% Technology Upgrades 9% Exploration 7% Plant Additions 7% Other 5% Ventilation Systems 4% New Mine Startup 4% Used Equipment 3% Reclaim Systems 2% Quality Control 1% New Plant Construction 0% What is the capital expenditure budget for 2019? Less than $10 million 29% $10-$25 million 21% $25-$50 million 17% $50-$100 million 17% More than $100 million 17% For 2019, will capital expenditures: Increase 54% No change 35% Decrease 12%

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