US thermal coal exports surging, a more positive pricing environment may be imminent

The Energy Information Administration (EIA) reported yesterday that coal exports are soaring, and are on pace to surpass the high of 113 million tons set back in 1981.

The EIA states....

U.S. 2012 coal exports, supported by rising steam coal exports, are expected to break their previous record level of almost 113 million tons, set in 1981. Exports for the first half of 2012 reached almost 67 million tons, surpassing most annual export volumes dating back to 1949. U.S. coal exports averaged 56 million tons per year in the decade preceding 2011. If exports continue at their current pace, the United States will export 133 million tons this year, although EIA forecasts exports of 125 million tons.

Total U.S. coal exports, including both steam and metallurgical (met) coal, were almost 13 million tons in June 2012, surpassing April's record-setting amount by 0.2 million tons. June was also the third consecutive month of exports surpassing 12 million tons. The global economy has been slowing, especially in China, the world's largest coal consumer by a large margin. As a result, EIA does not expect coal exports to continue at their current pace. Exports in August, the latest data available, reflect some of the weakening global demand for coal, falling 2 million tons from the record June levels. While declines in export levels inject some uncertainty, exports remain elevated with lower August exports still 13% above August 2011 levels. As a result, 2012 is still expected to surpass the 1981 record.

This increase in exports marks a significant reversal from the general downward trajectory of U.S. coal exports beginning in the early 1990s, which bottomed out in 2002 just under 40 million tons, the lowest level since 1961. Coal exports in 2011 rose 171% from 2002, with only a brief interruption by the global recession. Export growth accelerated after the recession, with consecutive post-2009 growth of more than 20 million tons per year, a level of growth not seen since the 1979-to-1981 export boom. Current data for 2012 (through August) show coal exports are growing even faster and should more than double 2009 export levels, buoyed by growth in U.S. steam coal.
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This is very positive for coal miners, as the incremental increase in coal production heading for the international thermal markets will be a swing factor in domestic utility supplies. In addition, I would not be as concerned about an incremental slowing of the thermal coal exports. My research has shown that energy production and use is less levered to economic growth, and hence thermal coal exports should remain strong so long as natural gas prices remain high internationally. There is still risk in the outlook for coal, one of which is the weather, but reduced supply and hints of an incremental increase in demand may be setting up for a more positive pricing environment..