Coal Revival? Hampton Roads, Virginia Coal Exports Are Up Big in 2017

 

 

By Robert McCabe

July 21, 2017 - Are we witnessing a coal revival? Only a year ago, coal exports from Hampton Roads, Virginia were in a downward spiral, following a portwide year-over-year drop of about 35 percent in 2015.

For the first half of 2016, exports from the port – the biggest coal-exporting port in North America – had dropped almost 30 percent from the same period a year earlier.

The picture began to change late last year, when all three of the port’s coal-export terminals – Norfolk Southern Corp.’s Pier 6 at Lamberts Point and Kinder Morgan’s Pier IX and Dominion Terminal Associates in Newport News – together posted a dramatic spike in business.

From this January through June, coal exports from Hampton Roads are up 56 percent from last year, according to T. Parker Host, a Norfolk-based ship agency, the largest in the nation for vessels carrying dry-bulk cargoes.

What’s up?

“Even, though, the picture looks very, very rosy at the moment, in three months it could turn,” said David Host, chairman and CEO of T. Parker Host. “A lot of people are very cautionary about, ‘Hey, this is going to continue.’””

The world market is split between “metallurgical” or “met” coal, used in steelmaking, and steam or “thermal” coal, which is used in electrical power plants.

Historically, only a relative sliver of the coal moving through Hampton Roads has been barged to utility plants on the East Coast. The rest has been exported, much of it high-quality metallurgical coal from Central Appalachia.

For the first six months of this year, though, all of the coal moved through the port’s three terminals has been exported.

The international coal market is a dynamic, delicately balanced ecosystem of sorts, experts say.

“If you pull a boulder into the Pacific Ocean somebody sitting on an Atlantic beach is going to get splashed,” said Jim Thompson, Knoxville, Tenn.-based senior director for U.S. coal with IHS Markit, a global research firm. “It’s a global market and it very much behaves as a global market.”

While improved demand in China, for example, might not lead directly to sales of American coal into China, it can create opportunities elsewhere, he added.

Thompson said he believes the surge in Hampton Roads’ coal exports is due to a combination of factors: a stronger metallurgical coal market; shipperschoosing to get more involved in the thermal market; and railroadsworking with people to try to make transportation costs work.

That third point seems to be borne out in recent railroad financial statements.

Last week, CSX Corp., which serves both the Pier IX and DTA coal terminals in Newport News, reported a 27 percent year-over-year increase in coal revenue for the second quarter, on a 7 percent gain in coal volume.

In April, Norfolk Southern reported that coal revenue for the first quarter surged 20 percent from the same quarter a year earlier, on a 21 percent gain in coal volume. The railroad is scheduled to release its second-quarter earnings this week.

Norfolk Southern’s export-coal business for the first quarter soared 71 percent from a year earlier, though the company exports coal from Baltimore as well as Norfolk. The railroad exports mostly thermal coal from Baltimore, which accounts for about 38 percent of its total export volume. Its Lamberts Point business, which exports the balance, mostly metallurgical coal, grew more than 50 percent during the first quarter.

At least for the foreseeable future, “you can expect export levels probably closer to what we’re seeing this year than what we saw last year,” Thompson said, adding a caveat.

Hampton Roads is still “very much married” to Central Appalachia production, and the thermal side of the business there has declined and will continue to decline, he said.

“We are seeing the relentless conversion of (Central Appalachian coal production) from a highly productive, extremely influential thermal coalfield to a met-heavy region that serves niche thermal markets,” Thompson wrote early this month in Coal & Energy/IHS Energy, a trade publication.

Local coal exports, then, are still going to be largely affected by the metallurgical coal market: When it’s strong, so exports will be, and when the met-coal market is weaker, exports will follow suit, Thompson said in an interview.

Nationwide, coal exports for the first quarter of this year were up 58 percent from the same quarter last year, the Washington, D.C.-based U.S. Energy Information Administration announced last week.

The agency, however, added that it “expects growth in coal exports to slow in the coming months,” with total 2017 exports forecast at 72 million tons, or 19 percent higher than the 2016 level.

Putting everything in perspective, however, the EIA noted that U.S. coal exports are still running way below capacity, having exported 61 million tons last year though the nation had a coal-export capacity of 257 million tons.

“Facilities in the Norfolk, Virginia, area alone have the capacity to export approximately 84 (million tons) annually – more than the total amount of coal exported from all U.S. ports in 2016,” the agency stated.

Given U.S. coal’s dramatic reversal of fortunes, at least as far as exports are concerned, one might wonder whether President Donald Trump’s campaign promise to revive the flagging coal industry is in any way related.

Thompson, however, said the factors in play are far more complicated than that.

While not wishing to denigrate, in any way, the impact of a friendlier political environment, that’s not what creates demand, he said.

 

Probably the single biggest driver of the surge in exports is that there is international demand for U.S. metallurgical coal right now, he added: “That is a function of the market rather than the political environment.”