Coal Age

MAY 2019

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May 2019 25 export markets continued able to maintain our Chinese custom- ers by supplying non-U.S. coal into China," Cron said. "We will continue to maintain our customers until these tariffs are hopefully lifted." For global coal sales, the growth in Asia is in China and India. The logis- tics of transitioning from the Atlantic Basin into the Pacific Basin, howev- er, are quite expensive. Should coal prices drop, transportation costs will consume a larger portion of the total delivered price. Drivers Behind Strength in Global Coal Prices Since April 2016, which was the bot- tom of the four-year bear cycle, the market has witnessed relatively strong coking and thermal coal prices on the back of very strong demand. Limit- ed supplies have entered the market. With coking coals specifically, the market has sustained an average price of $170/mt for more than eight years with extreme volatility from $74/mt to $315/mt. Last year, met coal prices averaged more than $200/mt, which has been quite favorable to suppliers. "On the thermal side, we are seeing significant demand out of Asia," Cron said. "The activity is predominantly in the Pacific Basin with growth in south- east Asia. The challenge for the U.S. is the logistics of getting coal to market. The strength in this market has pulled up Newcastle ther- mal pricing, which allowed Colom- bian and South African coals to enter the market. That allowed the U.S. to capitalize on strong pricing into Europe." The world today faces an u n p r e c e d e n t e d period with tariffs on coal that no one could have predicted. "Trade disputes have led to tariffs against U.S. coal, impacting our ability to win business in China and Turkey," Cron said. For China, that's 25% on top of the current Most Fa- vored Nations tariffs of 3% to 6%, on coking and thermal coals, respectively. Turkey also has a 13.7% tariff on U.S. coals. The U.S. reduced its 50% tariff on Turkish steel to 25%. The U.S. is cur- rently negotiating the General System of Preferences (GSP) with India, which is the equivalent of the U.S. waiving tariffs on Indian products into the U.S. This could pose an impact to U.S. coals moving into India. Tariffs did not influ- ence total demand, just the trade flows. "We have seen unprecedent- ed volatility with coking coal prices since July 2016," Cron said. "Extreme rains and flooding in China creat- ed demand at any cost and pushed prices above $300/mt by end of 2016. Cyclones in Queensland and subse- quent flooding kept coal out of the market. Mine outages and railway is- sues persist today in Australia." Looking at forward pricing, the coking coal market is still in a strong price environment. "We will likely average more than $200/mt through 2019 based on the forward projec- tions," Cron said. "The uncertainty is beyond that. The open interest on that exchange ends in 2022 and those prices are $170/mt today. The lack of liquidity on that exchange may not al- low those prices to come to fruition." Five countries export a significant amount of coking coals: Australia (the largest), the U.S., Canada, Russia and Mozambique. During 2018, U.S. cok- ing coal producers were the biggest beneficiaries of the strong pricing levels. As a country, the U.S. added the most growth, 6 million mt of the 15 million mt of growth last year. "It's hard to believe that, at prices of more than $200/mt, the market would only experience a growth of 15 million mt, which is 5% or so," Cron said. "This shows a lack of new investment and PI 2 prices have dropped more than 30% from December 2018 to present. China and India lead the world in pig iron production.

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