Coal price flat for 2nd month on weak demand

Coal markets traded mostly flat to lower in June as weather remained mild and demand was slack. While utility inventories are low by historical standards, generators are awaiting stronger demand signals before building stockpiles up further. The NYMEX CAPP prompt-month benchmark nudged up 12 cents/ton while NYMEX PRB lost $1.10/ton, or 8%. Northern Appalachian markers lost 25 cents/ton to 35 cents/ton, while remaining physical markers traded flat for the month.

Natural gas injections to storage picked up during June, but too slowly to fill storage to normal levels by summer's end. To reach normal storage levels, incremental supply of 6 Bcf/d is needed, leading many analysts to expect a deficit to end the injection season. The ongoing need for additional storage injections combined with expected seasonal demand kept Henry Hub natural gas spot prices above $4.50/MMBtu during June. Even with injections beginning to pick up over the last two weeks, SNL Energy expects Henry Hub to remain above $4.25/MMBtu for the summer and may remain at current levels if power generation demand is sufficient. Many shale gas hubs, it should be noted, are pricing from $4.00/MMBtu to $4.25/MMBtu.

Coal is likely to remain competitive for power generation for the balance of 2014 in most markets. However, coal production results so far suggest that utility demand has not picked up as much as expected. While a surge in seasonal demand for electricity and associated coal demand appears likely for the third quarter, utility efforts to restore inventories may not begin in earnest until the fourth quarter.

Near-term pricing for spot transactions remains robust, compared to recent history. The chart below shows SNL Energy's current price forecast for the PRB 8800 and 8400 markers.