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Low prices and falling demand lower US 2012 coal production

07 Nov 2012 13:08:17 | csd

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US coal production is expected to decline by 7% year on year to 926m tonnes in 2012 because of reduced domestic consumption, high coal inventories and low prices, which will likely result in shut-downs of higher-cost production, the US Energy Information Administration (EIA) said on Tuesday.

However, despite the cuts, US coal exports will remain strong in 2012, exceeding the 97m tonnes exported in 2011. Total US coal exports are expected to reach a record of about 125m tonnes in 2012, far surpassing the previous record of 113m tonnes, set in 1981.

Looking further ahead, while production is expected to remain steady year on year in 2013, exports are expected to decline but remain above 91m tonnes next year.

"Continuing economic weakness in Europe, lower international coal prices, and increasing production in Asia are primary reasons for the expected decline in coal exports," EIA said. "US exports could be higher if there are significant supply disruptions from any of the major coal-exporting countries."

EIA previously said that Europe remains the key export destination for US coal but spot physical coal prices in the Atlantic basin have declined sharply over the past year. ICIS data show that since January - when spot DES ARA cargoes dealt around $112/tonne - prices had declined by nearly 30% by mid-October when a November '12 cargo changed hands at $80.25/tonne, the lowest recorded spot price since ICIS began collecting the data in July 2010.

And although spot physical prices have strengthened over the past two weeks - with lower freight rates adding support to the delivered market, according to some traders - the outlook for the rest of the year remains bearish.

"I think we haven't broken out of the downside trend. There is limited upside and I see the market as stable to mildly bearish," one trader said on Tuesday. A second source agreed but said the market can be unpredictable and - particularly when liquidity begins falling towards the end of the year - open to more volatility. "At the moment, I think it is anyone's game. Fundamental indicators are all showing the market should fall further and yet we have seen strong bids over the past couple of sessions," the source added. MV

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