Thursday, October 4, 2012

Coal exports surging, US coal miners to benefit

The coal complex is surging this morning with Arch Coal (ticker ACI) up nearly 7%, James River Coal (ticker JRCC) gaining a similar amount, Alpha Natural Resources up more than 3%, and the coal sector ETF (ticker KOL) gaining more than 1%.  This is on the back of data released by US Energy Information Administration (EIA) and as reported buy the Financial Times that US coal exports are surging. Through the first half of the year, coal exports amounted to 66.2 million short tons, or 12.6 million tons more than the comparable year-ago period. At an annualized rate, coal exports may increase by 22.5 million tons.

In my opinion, the export story will continue. US coal is amongst the highest quality coals in the world. In addition, coal faces less competition in the World markets due to the higher price of natural gas in nearly all markets outside of the US.

US coal exports to Europe soar

coal being loaded onto a truck at a coal mine in america©Getty
US coal exports rose 24 per cent – hitting a record of 66.2m short tons – in the first half of the year, according to the US Energy Information Administration.
Sales of US coal have been booming in Europe as power generators there ditch more expensive natural gas in favour of coal.

More than half the US exports, which represented about 13 per cent of US production, went to Europe. Overseas sales have since slowed, but the US is still on course to exceed the previous annual record of 112.5m tons exported in 1981.

The surge in transatlantic trade has emerged because US and European power companies are facing opposite incentives in the competition between gas and coal-fired plants.

In the US, the glut of natural gas caused by the shale revolution has driven prices to a 10-year low, and pushed the share of the country’s power generated by coal to its lowest for 40 years.

In Europe, natural gas is generally sold on contracts linked to the oil price, which is still relatively strong, and it is often more expensive as a source of power than cheap US coal.

The price of US coal has slumped from a peak in July 2008 of $161 a ton for central Appalachian steam or thermal coal, used to generate power, to $63 this week, according to Platts, the information service.
The fall in the price of carbon dioxide emissions permits in the EU’s trading scheme has also encouraged utilities to switch from burning gas to coal, which creates higher emissions.

Further, a drought in Spain hit the country’s hydro-power generation, forcing utilities to import more coal.
UK imports of thermal coal from the US had already been rising sharply, nearly doubled from 2.54m tons in 2010 to 4.92m tons in 2011, according the most recent figures from the British government.
Mark Lewis, managing director of commodities research at Deutsche Bank, said there was now a debate over how long the cost advantage for coal in Europe would last.

“It could change by the first quarter of next year if the EU reaches agreement to remove a significant portion of carbon allowances,” he said. “This could increase carbon allowance prices.”
He said a carbon price in the range of €15-€20 a tonne of CO2 would make gas much more competitive with coal.

No comments:

Post a Comment