Exports can’t save US coal

Between late 2010 and the end of 2014, the top ten publicly-traded coal companies in the US saw their combined share price value drop by more than half, as hundreds of plants closed and thousands of employees were laid off.

The US coal industry – struggling to compete with cheap natural gas at home – turned to exports to take up some of the slack in the domestic market. From less than 5 million tons of steam coal exports in the first quarter of 2009, shipment rose to 17.4 million tons by the second quarter of 2012.

But cargoes have been declining since then with first quarter exports this year less than half the peak three years ago. Over the same period coking coal exports are down nearly a third. The US now commands less than 1% of the 900 million tons seaborne thermal coal trade.

Aside from a small number of high-productivity longwall mines, operations in the US are predominantly in the 4th quartile of the seaborne thermal coal cost curve according to a new report by CRU Group which covers more than 300 mines and projects globally.

Reasons for this lack of competitiveness are plenty says the mining and commodities research company:

"US mines were already comparatively high-cost due to factors such as high distances to export facilities (e.g. the Powder River Basin mines), difficult geology and high legacy workforce costs (e.g. Appalachian mines), but the appreciation of the US Dollar is what is hurting coal producers there most.

CRU says free on board costs for global producers range from a low of $21.9 per tonne to a high of $116.2 per tonne for ongoing operations.

Indonesia is the undisputed leader in the seaborne thermal market. The Asian nation dominates the 1st quartile due to the availability of abundant and cheap labour, low-cost river barging, capital-light operations and the ability to sell run-of-mine coal, without the added expense of washing says CRU.

CRU's analysis of the margin curve, based on our estimate of the average annual prices, finds that "around 30% of seaborne production sold on a delivered basis into its natural market is expected to be loss-making in 2015." Many of these unprofitable mines are in the US and Australia.

Exports won’t save US coal

Source: CRU Group