The continued bad news from the domestic coal market has been interrupted lately by some sporadic positive boosts from increased exports.
A curious example is the shipment of 700,000 tons of steam coal from Pennsylvania and West Virginia to Ukraine to displace Russian coal imports. Half of the tonnage, 350,000, will be anthracite coal that originated in central Pennsylvania in the heart of old hard coal country. The Pennsylvania coal will move by rail to Baltimore.
Another interesting coal export deal is Cloud Peak Energy’s long-term contract to deliver Powder River Basin coal to a new Japanese power plant. Shipments are expected to begin at the end of 2019 and continue for 30 to 40 months, reaching up to one million metric tons in the final year of the contract. The coal will be exported through Vancouver, British Columbia, transhipped there by rail.
There have been other reports of new coal exports moving by rail through Norfolk, Va., as well as the recent upswing in the Asia/China market. These coal export deals show that the U.S. can be a swing exporter when market conditions permit the sum of domestic production costs and delivered transportation costs to be competitive in world markets.
Compared to lower cost producers such as Australia and South America, the U.S. is often barely competitive once freight costs are factored in. In some cases small changes in world coal market conditions can make the U.S. uncompetitive.
Freight costs will be a major competitive factor for railroads and barge lines with substantial excess capacity in their respective coal sectors. This could be what determines whether the coal flows to the Lower Mississippi or alternative rail ports on the east and west coasts.
There is some optimism in the coal sector that increased exports will take up some of the slack from the domestic markets. However, as long as the U.S. is a swing export coal supplier, expect the continuation of the ups and downs in the export market characterized by relatively short-term contracts and small volumes cited in the aforementioned deals.
Until the U.S. can be a low cost producer and shipper, export coal will not become a sustaining sector to supplement the permanent loss of domestic coal.
