Falling Prices Pressure Smaller U.S. Coking Coal Mines
September 18, 2019 - U.S. coking coal producers are starting to show signs of strain from the steep drop in seaborne coking coal prices in the last quarter, as the outcome of 2020 domestic price discussions emerge and buying remains cautious in Europe and Asia.
In July, U.S. coking coal exports fell to 3.66mn st from 5.07mn st in the same month last year. Shipments to Europe plunged to 1.59mn st from 2.22mn st, while exports to Asia dropped to 698,714st from 1.28mn st.
The Argus daily assessed high-volatile B price at $134/t fob Hampton roads yesterday touched its lowest level since February 2018, down from a high of $170/t at the start of this year. The high-volatile A price has hit $144/t fob Hampton roads, the lowest point since July 2017 and down from a peak of $211/t in January.
Steel production cuts in Europe since the second quarter have been compounded by a quieter-than-usual summer and there continues to be little in the way of fresh demand emerging in the fourth quarter.
Demand from India, where interest in U.S. coking coal has grown in recent years, has been subdued going into the fourth quarter. Indian buyers are cautious on two fronts, as they wait to see more stability in seaborne prices and assess domestic steel demand amid an intensifying economic slowdown.
The falling seaborne prices have also had implications for the U.S. domestic market, which has enjoyed a strong couple of years. While established U.S. producers supplying popular coal grades to both domestic and export markets appear to retain a steady negotiating position for the 2020 domestic price discussions, mines that are looking to recover market share lost last year or gain a foothold in the market have been offering significant discounts of $15-20/t or more on last year's prices, say market participants. "Some domestic-focused producers are panicking a bit this year and leaving money on the table in their price discussions," said one U.S. mining firm.
A Dampener on Plans
A price floor of around $150/t fob Hampton Roads has often been mooted in the market for high-volatile U.S. coking coal, and the current index prices have meant that some mines are at or are below cost now.
While the majority of U.S. coking coal continues to be sold on a term basis and domestic prices are still negotiated yearly, offering some protection to suppliers, the lower index prices have meant that mines are starting to review their production plans. Some mines would be in a tighter cash flow position and will likely have to draw on their own capital to fund expansion.
Production plans that only months ago reflected more market optimism are also showing signs of strain as mines are starting to confront narrowing margins.
The Pinnacle underground mine owned by Justice Companies subsidiaries Contura and Bluestone Resources was previously due to restart operations in July but the mine has since shut down indefinitely. The mine which was bought from Mission Coal and had been closed since shortly before Mission filed for Chapter 11 bankruptcy protection in October 2018.
"There has been a large drop in the metallurgical coal market and these layoffs are necessary at this time. Management always regrets making any layoffs and these decisions are never taken lightly," Bluestone said, in reference to the miners at Pinnacle who were laid off this month.
The Pinnacle underground mine produced 1.02mn st of primarily low-volatile coking coal in 2018, according to U.S. Mine Safety and Health Administration data.
Other producers remain confident of their production plans. Rhino Resource Partners finalised its purchase of Blackjewel's Virginia coking coal mines last month and is hiring key personnel to restart production at those mines.
"We are also evaluating expanding production with these assets based on market demand for this high-quality mid-vol coal," Rhino chief executive Rick Boone said.