LONDON (Reuters) - The glut of U.S. thermal coal unwanted by Europe or China is being sold into every niche market but not fast enough to avoid further price falls, traders and utilities said.
U.S. thermal coal exports hit a record 37 million short tons in 2011 due to strong European prices but this year prices and profit margins have fallen dramatically and the coal is chasing a few buyers further afield.
Virtually every trader and utility is long U.S. coal, traders say, and many have multi-year term supply deals. The usual European and Chinese buyers have been absent for months.
“With European stockpiles high off of a mild winter and strong renewables performance, we expect demand for U.S. thermal coals to drop this year,” said New York-based analysts Dahlman Rose in a research note.
“The U.S. enjoyed a positive (in the money) position through much of 2011, but that has essentially vanished by February 2012,” the note said.
Stockpiles in Europe’s main import hub of Amsterdam-Rotterdam-Antwerp are close to full, much of this U.S. coal, and many of the recent multi-origin trades have been U.S. material in ARA.
Delivered Europe DES ARA prices have fallen to around $95-98 a tonne from $120 in October because of weak demand in Europe and China halting spot buying after a record Q4 imports surge.
“Everybody is long U.S. coal and it’s being stuffed into every available pocket because the alternative is to dump it into ARA,” one European trader said.
European utilities said they are still being offered far more U.S. coal of 1-4 percent sulphur than they can take, regardless of attractive pricing.
“It’s very easy to get any kind or quality of coal so for the U.S. high-sulphur of 3 percent and above to work it has to be priced at a big discount to DES ARA - around $20 a tonne discount to the API2 index,” one European utility source said.
“This nets back to $60-65 a tonne FOB U.S. which looks really low but it’s not a crazy number and it can work for the seller,” he added.
At this kind of FOB price, U.S. coal also works into the Indian market, where a few panamax cargoes have been bought during the past two weeks by cement makers, Indian traders said.
“It’s not a big volume yet, a few cargoes have been bought and only by cement people so far, as an alternative to petcoke or South African coal,” one major Indian trader said.
Despite panamax freight costs of around $40 a tonne from the U.S. to India, coal with sulphur of 2.85-3 percent and energy content of 6,000 kc/kg Net As Received is being bought at $101-110 a tonne CIF India, Indian traders said.
“There’s less petcoke available from the U.S. but we’re starting to see more U.S. thermal coal blended in India,” another major trade importer said.
For low cost U.S. producers, FOB prices in the $60s can work but others will have to trim output because they cannot export profitably at these prices and the domestic outlook is grim.
“At a netback to Central Appalachia of $51-60 a short ton, only the lowest-cost operations would be in the money,” Dalman Rose said.
Current 2013 prices are also below most producers’ cash costs.
Turkey has traditionally been a key, neighbouring market for Russian coal shipped from the Black Sea although some inroads have been made by South African and Colombian coal in capesize vessels into the bigger ports.
But here too, U.S. coal has been displaced all of these origins to some extent, particularly among the larger end-users.
“Every trader is selling, is offering coal into Turkey, into every tender there because it’s cheaper than Russian or South African,” another European trader said.
“There is a lot of U.S. coal coming into Turkey but the question is how much more because a lot of it has too much sulphur or volatiles to meet environmental rules,” a Russian exporter said.
“We are concentrating on the smaller end-users who will pay a premium, who want Russian coal in small ships,” he added.
Editing by William Hardy