Houston — Declining natural gas prices continue to drive coal demand down, leading to projections of US coal production totaling near 500 million st in 2020, S&P Global Platts Analytics said in a report.
"Due to an extraordinarily mild January, our heating-season gas price outlook has been lowered roughly 9% from last month's levels to ~2.19/MMBtu," Platts Analytics said in its US Coal Market Forecast report, published late Wednesday. "Projected underutilization of LNG infrastructure has also resulted in a downward revision of summer 2020 Henry Hub prices to an average of $2.13/MMBtu. Given the gas price revision, we now believe that CY20 US coal demand could fall below the 500 million st mark."
Platts Analytics estimate full-year 2019 power sector coal consumption of 532 million st, down 102 million st from 2018, the biggest annual fall in consumption since 2015.
Based on railcar loadings, the report said, production appears to be 696 million st in 2019. Platts Analytics reduced its 2020 output estimate to 671 million st in order to reflect Illinois Basin mine closures.
Following, several mine closures, IB output cuts total about 14 million st annually.
Platts Analytics estimated 2019 ended with 123 million st-124 million st in stockpiles, about 21 million st higher year on year.
Largely the US coal markets have been quiet, "with price action generally sideways over the last month," the report said.
In Central Appalachia, Platts Analytics expects prices to rise modestly since current prices are below marginal costs.
Bearish sentiment remains with the Powder River Basin since gas price weakness is expected to continue into the summer.
"With the potential for consolidation in the basin as a result of an Arch/Peabody combination of assets in the PRB, we have not lowered our already-bearish price forecast, but we note that the downside risks have grown," Platts Analytics wrote.
The cuts in the IB reduce downward pressure on prices, but with the downward revision to gas prices, modest oversupply is expected.
In the Northern Appalachian basin, given the recent rise in South African coal prices, exports should increase into India for buyers who cannot substitute for petcoke.
On the export side, Platts Analytics continues to project 2019 shipments to come in at 38 million st, down over 16 million st from the previous year.
Additionally, Platts Analytics projects a decline of 4 million st in thermal exports in 2020 compared with 2019.
"While coal netback pries are not attractive to most producers, high South African prices has generated Indian buying interest for US NAPP coal recently, with several shipments reported last week by S&P Global Platts," the report said.