Corporate Debt Review

Met coal back above $140/t as China traders re-enter market

Coal Prices (Domestic - US$/short ton)

Commodity
Spot (ICE)
Front Month
Q2 2017
Cal 18
CSX 12,500 <1.2%S
% Change
$ 54.45
D
0.0
M
7.6
Y
45.0
$ 54.50
D
0.0
M
2.2
Y
34.9
$ 54.57
D
0.0
M
2.3
Y
17.0
$ 55.90
D
0.0
M
3.3
Y
8.9
PRB 8,800
% Change
$ 11.25
D
0.9
M
3.0
Y
21.6
$ 11.25
D
0.0
M
2.6
Y
19.7
$ 11.23
D
0.3
M
2.7
Y
0.1
$ 11.45
D
0.0
M
2.6
Y
2.3
ILB 11,500 3.1% S
% Change
$ 33.05
D
0.0
M
3.1
Y
10.0
$ 33.05
D
0.0
M
8.1
Y
2.3
$ 33.00
D
0.0
M
3.1
Y
6.4
$ 34.45
D
0.0
M
2.7
Y
3.5
Source: ICE; Argus (ILB)

International Coal (US$/tonne)

Commodity
Spot (ICE)
Front Month
Q2 2017
Cal 18
API 2 (CFR ARA ports)
% Change
$ 79.05
D
0.1
M
6.5
Y
53.5
$ 79.05
D
0.2
M
4.4
Y
38.4
$ 78.50
D
0.2
M
5.2
Y
34.1
$ 69.53
D
0.1
M
5.4
Y
17.9
API 4 (Richard's Bay, SA)
% Change
$ 77.85
D
1.1
M
6.7
Y
33.4
$ 77.80
D
1.9
M
3.9
Y
25.4
$ 77.87
D
1.8
M
3.3
Y
25.1
$ 72.03
D
0.7
M
3.3
Y
15.3
Newcastle, AUS
% Change
$ 80.75
D
0.6
M
8.8
Y
52.8
$ 81.20
D
1.9
M
9.2
Y
44.5
$ 79.93
D
1.6
M
8.1
Y
33.2
$ 72.00
D
1.3
M
6.5
Y
17.6
Colombia 6,000 Kcal (P. Bolivar, COL)
% Change
$ 73.50
D
0.1
M
6.5
Y
56.9
$ 73.50
D
0.2
M
4.4
Y
41.5
$ 73.00
D
0.2
M
5.2
Y
37.0
$ 64.65
D
0.2
M
5.4
Y
20.5
Indonesia 5,000 Kcal (FOB Kalimantan)
% Change
$ 54.05
D
1.5
M
1.4
Y
35.5
$ 53.85
D
1.9
M
2.4
Y
30.5
$ 53.80
D
1.9
M
1.1
Y
28.4
$ 50.15
D
0.6
M
2.3
Y
16.1
Source: ICE; ECRG

Other US Regional Coal Prices (US$/short ton)

Commodity
Implied Spot
Implied 1M
Implied Q2 17
Implied Cal 18
NAPP 13,000 2.5% S
% Change
$ 44.45
D
0.0
M
1.6
Y
40.7
$ 44.50
D
0.0
M
6.5
Y
30.9
$ 44.40
D
0.0
M
1.4
Y
19.8
$ 46.10
D
0.0
M
1.5
Y
8.9
PRB 8,400
% Change
$ 8.60
D
0.0
M
4.4
Y
12.4
$ 8.60
D
1.1
M
3.9
Y
11.0
$ 8.60
D
0.0
M
4.4
Y
5.5
$ 9.20
D
0.0
M
2.1
Y
0.0
UINTA
% Change
$ 40.50
D
0.0
M
0.5
Y
1.5
$ 40.50
D
0.9
M
0.0
Y
0.1
$ 40.45
D
0.1
M
0.6
Y
14.8
$ 41.65
D
0.0
M
0.4
Y
4.5
Source: ECRG

Metallurgical Coal (US$/tonne)

Commodity
Current Q
Spot
HCC Benchmark
% Change
$285.00
D
0.0
M
42.5
Y
251.9
$145.00
D
0.7
M
16.2
Y
63.2
US Low-Vol (FOB Hampton Rds)
% Change
$232.00
D
0.0
M
22.1
Y
200.9
$138.95
D
0.0
M
19.9
Y
52.2
US Hi-Vol A (FOB Hampton Rds)
% Change
$250.00
D
0.0
M
26.3
Y
215.7
$144.65
D
0.0
M
24.8
Y
58.4
US Hi-Vol B (FOB Hampton Rds)
% Change
$200.00
D
0.0
M
17.6
Y
174.3
$127.60
D
0.0
M
13.6
Y
56.8
Source: SGX; ECRG

Coal Analysis

Key Coal Stats

Weekly US Production (Mst)
% Change
15.51
D
0.0
M
8.2
Y
16.2
Monthly Non-Lignite Stocks (Mst)
163.90
D
0.0
M
1.2
Y
14.8
Weekly US Coal Carloads
85,516
D
3.6
M
15.1
Y
16.7
NYMEX API4 Net Long/Short (Fut & Opt)
4,427
D
19.6
M
12.8
Y
51.5
Source: EIA; CFTC

ECRG Coal/Gas Switching Index (Coal > 0 > Gas)

Mid-Atlantic
% Change
-7.1%
D
0.9
M
23.8
Y
18.2
South Atlantic
-5.9%
D
5.5
M
5.0
Y
9.3
East North Central
9.7%
D
10.3
M
19.9
Y
15.6
East South Central
14.2%
D
13.6
M
22.2
Y
17.9
West North Central
42.7%
D
42.0
M
49.8
Y
50.3
West South Central
15.9%
D
15.8
M
24.2
Y
18.1
Source: ECRG

Commentary

Physical spot prices for benchmark metallurgical coal shot up $3 to around $142/t according to this morning’s most recent assessments from Australian markets. That came largely on the back of the decision by Chinese coal producers to cancel a price cut for premium domestic brands, forcing traders and end users into the seaborne market to look for cheaper material in order to capitalize on current met coke prices, which are hovering in the US$220-225/t range. Without that domestic price cut in China, seaborne benchmark spot prices are about $2-3/t cheaper compared to those on the Dalian Commodity Exchange after accounting for ocean freight rates of around $6-7/t. So as long as there’s an arbitrage point here, prices should continue to rise, with ~$144-145/t serving as upper resistance for now. And if either met coke or Chinese domestic met coal prices were to rise, then we would expect that upper level to rise alongside it.

Natural gas is up about 1% this morning after two consecutive trading days of hovering around the $2.90/mmbtu level, but that’s likely not enough to move the needle for near-term US thermal coal prices, which mostly held flat on the day. Though API 2 prices declined, they’re still in a range where they’re supportive of current CSX prices, which is why those markets haven’t yet reacted to the most recent downturn in gas. Western prices got a bit of a boost yesterday – probably a bit overdue as PRB is well in the money at key markets and has been incredibly oversold during the shoulder season. Near-term weather has turned a little more bearish for gas and coal, but that appears to be dissipating by the beginning of July. As such, if markets can manage to hold support levels for the next two weeks, then we should begin to see prices creep up seasonally from there.