Thermal coal exporters in the Americas face a diverging outlook for 2015.
Shipments from low-cost supplier Colombia will likely keep rising while exports from higher-cost US producers will weaken as they are increasingly priced out of the market.
For the first 10 months of 2014, US thermal coal shipments to Europe fell to 12.5mn metric tonnes from 22.7mn t in the same period last year. Total steam coal shipments, including to Asia, Latin America and elsewhere, have fallen to 26.7mn t from 40mn t. US east coast port data show volumes falling, and producers foresee more weakness ahead.
“It is going to be a new world next year,” one US producer said.
Many long-term export contracts signed three years ago will be rolling off and few producers are expected to sign long-term contracts with delivered Europe pricing at $70-80/t for most of the last year or longer. More recently, API 2 markets dropped below $67/t this week and demand fundamentals in Europe remain challenged.
Those prices are well below the roughly $90-100/t level most US exporters, particularly those in Central Appalachia, need to make shipments to Europe economical.
The strengthening US dollar is another headwind for US shippers to Europe, as the euro has weakened about 8pc in the last four months against the dollar. That makes it that much costlier for European customers to buy US dollar-denominated coal.
US producers, particularly in Central Appalachia, have been idling higher-cost mines and curtailing output to support prices. One large producer sees Central App exports tumbling to 4.5mn t next year from about 9.1mn t this year, with Northern App and Illinois basin shipments filling the narrowing gap. More idlings and bankruptcies are expected.
The export trade is more likely to focus next year on shorter-term contracts and spot deals, much of it conducted by traders. More export coal will be diverted into the domestic utility or industrial markets, and some will sell as crossover coal into the domestic steelmaking market, a reversal from this year.
Colombian exports, on the other hand, are in a better spot. The country has lower average mining costs than many US producers and will be able to ship more coal next year after resolving loading issues in 2014.
Total Colombian steam coal exports for the first 11 months of the year are at 68.1mn t, compared with 66.8mn t in the same period last year. Shipments to Europe, Turkey and Israel have held unchanged at 47.8mn t for the 11-month period, according to Deep Blue shipping data.
The top two Colombian producers Cerrejon and Drummond have each installed second direct ship loaders at their export terminals to get capacity to ramp up volumes quickly. And a Goldman Sachs unit that has been blocked from exporting this year is expected to ship from Drummond’s port next year under a joint agreement.
Colombian coal shippers are also benefiting from a peso that has weakened about 24pc against the dollar in the last four months as the Federal Reserve tapered, and then halted, its so-called quantitative easing policy. That boosts peso-denominated revenues for Colombian producers and enables them to survive in a lower-dollar pricing environment.