Coal Age

MAY 2019

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24 May 2019 export markets Trade Disputes and Increased Demand Cause Shifts in International Coal Markets Coal quality has an influence, but China sets the prices for now by steve fiscor, editor The global seaborne coal trade is a market in transition. Despite the tariffs and trade rhetoric, prices remained high and business was brisk for both thermal and metallurgical coals last year. Met coal demand moves in lock- step with steel production and, while China and India continue to produce record amounts of steel, steel produc- tion in other parts of the world has slowed. The fact that coal producers have not brought more met coal to market is helping to sustain prices for coking coals. Is there a correction in the offing or is this the new norm? Demand for thermal coal is grow- ing in Asia and the Pacific Basin and declining in the Atlantic Basin. U.S. coal suppliers benefited the most from last year's high prices, but spot prices for thermal coal have softened recently. Large amounts of coal are piling up in Australia and it's only a matter time before those coals enter the market. Does Asia have the capac- ity to absorb that excess production if China chooses to import more coal from other sources? Trying to predict the future in this market is difficult, especially when it's almost impossible to determine fu- ture coal prices more than one to two months ahead. Speaking at the recent Longwall USA Conference & Exhibi- tion in Pittsburgh, Nick Cron, general manager, portfolio optimization and marketing, Xcoal, shared market ob- servations. Xcoal is a team of more than 100 professionals that focus on international coal marketing and lo- gistics. In his presentation, Global Coal Market Overview, Cron detailed recent market trends and identified some possible concerns moving forward. Xcoal markets coal. It doesn't own U.S. coal production assets, but it is actively pursuing investment oppor- tunities in coal mines and infrastruc- ture outside the U.S. The company's goal is to build volumes outside the U.S. that match those from the U.S. More recently, they have developed some creative methods for moving coals to market in the Pacific Basin. "The U.S. supply base for Xcoal is the core of our business," Cron said. "We have built on that by growing our footprint outside the U.S. as a hedge to become a better supplier to our partners here in the U.S. Some niche businesses allow us to tap into markets where some of our competitors cannot." In 2019, Xcoal will likely sell 29 million tons of coal. The company fin- ished 2018 just under 20 million tons. "In 2017, most of our non-U.S. portfo- lio was simply traded," Cron said. "We took a buy and sell position and had a traded book running from our desk in Singapore. In 2018, we took an equity position in some of these operations and rebalanced our non-U.S. portfolio." Xcoal is predominantly a met ex- porter (70:30) and rather opportunistic with its thermal exports. They have an exclusive arrangement with CONSOL Energy to export its high-Btu northern Appalachian (NAPP) coal. They have a similar ratio of U.S. coal to non-U.S. coal (73:27). "Ultimately, our goal is to reach 50:50," Cron said. "The growth in non-U.S. supply provides a natu- ral hedge for Xcoal's core U.S. base and makes Xcoal a stronger customer, counterparty, supplier and partner. When there is a market downturn, we can maintain our customers by shifting the supply to them, while still main- taining our traditional offtake from the U.S. despite international prices." For Xcoal, China has grown from nothing in 2015 to 17.4% of its total portfolio and that was on the back of a 25% tariff on U.S. coal. "We were Following a 4-year bear market, met coal prices have averaged $170/mt for the last 8.5 years. The U.S. accounts for the largest portion of growth in coking coal exports last year.

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