Corporate Debt Review

US met coal declines on demand weakness despite global strength

Coal Prices (Domestic - US$/short ton)

Commodity
Spot (ICE)
Front Month
Q4 2017
Cal 18
CSX 12,500 <1.2%S
% Change
$56.00
D
0.0
M
0.3
Y
21.3
$56.35
D
0.0
M
1.3
Y
23.4
$56.43
D
0.0
M
2.0
Y
17.9
$56.60
D
0.0
M
1.1
Y
12.2
PRB 8,800
% Change
$11.95
D
0.0
M
5.8
Y
19.5
$11.75
D
0.0
M
4.4
Y
16.9
$11.75
D
0.0
M
4.0
Y
2.2
$11.76
D
0.0
M
2.8
Y
0.2
ILB 11,500 3.1% S
% Change
$34.25
D
0.0
M
1.6
Y
10.7
$34.45
D
0.0
M
3.1
Y
12.6
$34.20
D
0.0
M
1.3
Y
5.4
$34.25
D
0.0
M
0.1
Y
0.1
Source: ICE; Argus (ILB)

International Coal (US$/tonne)

Commodity
Spot (ICE)
Front Month
Q4 2017
Cal 18
API 2 (CFR ARA ports)
% Change
$84.40
D
0.4
M
0.3
Y
41.4
$84.45
D
0.9
M
2.2
Y
40.4
$83.00
D
0.7
M
5.4
Y
46.9
$76.41
D
1.2
M
7.1
Y
35.7
API 4 (Richard's Bay, SA)
% Change
$86.60
D
0.6
M
3.8
Y
33.6
$87.95
D
1.3
M
6.5
Y
35.0
$86.70
D
1.6
M
7.9
Y
42.8
$78.73
D
0.9
M
6.1
Y
29.9
Newcastle, AUS
% Change
$95.85
D
0.7
M
15.0
Y
44.6
$92.85
D
1.4
M
12.1
Y
40.3
$89.10
D
1.8
M
11.6
Y
46.8
$80.04
D
1.5
M
8.5
Y
29.1
Colombia 6,000 Kcal (P. Bolivar, COL)
% Change
$78.50
D
0.4
M
0.3
Y
34.2
$78.55
D
0.9
M
2.2
Y
33.2
$77.20
D
0.7
M
5.4
Y
39.5
$71.05
D
1.1
M
7.1
Y
28.8
Indonesia 5,000 Kcal (FOB Kalimantan)
% Change
$61.40
D
1.7
M
10.0
Y
27.9
$58.80
D
1.9
M
6.6
Y
23.1
$59.15
D
2.2
M
9.2
Y
32.6
$55.25
D
0.6
M
2.5
Y
17.3
Source: ICE; ECRG

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

Commodity
Implied Spot
Implied 1M
Implied Q4 17
Implied Cal 18
NAPP 13,000 2.5% S
% Change
$44.60
D
0.0
M
0.9
Y
28.9
$44.90
D
0.0
M
2.5
Y
31.1
$44.55
D
0.0
M
0.7
Y
22.9
$45.20
D
0.0
M
0.2
Y
18.2
PRB 8,400
% Change
$9.05
D
0.0
M
5.2
Y
13.1
$8.90
D
0.0
M
4.1
Y
10.6
$9.00
D
0.0
M
5.3
Y
0.6
$9.25
D
0.0
M
1.1
Y
2.1
UINTA
% Change
$41.30
D
0.0
M
1.2
Y
3.0
$40.60
D
0.0
M
0.0
Y
0.7
$41.00
D
0.0
M
1.0
Y
9.8
$41.35
D
0.0
M
1.2
Y
6.4
Source: ECRG

Metallurgical Coal (US$/tonne)

Commodity
Current Q
Spot
HCC Benchmark
% Change
$194.00
D
0.0
M
31.9
Y
131.0
$194.00
D
1.0
M
16.2
Y
85.1
US Low-Vol (FOB Hampton Rds)
% Change
$182.60
D
0.0
M
21.3
Y
141.5
$155.45
D
5.4
M
11.0
Y
63.8
US Hi-Vol A (FOB Hampton Rds)
% Change
$192.10
D
0.0
M
23.2
Y
146.0
$165.30
D
5.7
M
13.0
Y
72.3
US Hi-Vol B (FOB Hampton Rds)
% Change
$160.10
D
0.0
M
20.0
Y
121.7
$139.75
D
5.6
M
10.9
Y
59.5
Source: SGX; ECRG

Coal Analysis

Key Coal Stats

Weekly US Production (Mst)
% Change
16.13
D
0.1
M
20.0
Y
1.3
Monthly Non-Lignite Stocks (Mst)
164.92
D
0.0
M
0.8
Y
14.7
Weekly US Coal Carloads
92,517
D
0.1
M
20.3
Y
3.6
NYMEX API4 Net Long/Short (Fut & Opt)
3,476
D
8.1
M
26.9
Y
56.9
Source: EIA; CFTC

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

Mid-Atlantic
% Change
-23.2%
D
29.7
M
13.8
Y
0.9
South Atlantic
-5.4%
D
6.0
M
2.4
Y
0.9
East North Central
9.3%
D
8.0
M
13.7
Y
11.7
East South Central
12.7%
D
12.2
M
18.2
Y
13.3
West North Central
39.0%
D
36.6
M
46.5
Y
46.8
West South Central
13.0%
D
9.6
M
16.7
Y
15.8
Source: ECRG

Commentary

US metallurgical coal indices declined by more than 5% across the board yesterday, as minimal buying activity weighed on the sector. European and Brazilian end users largely stayed out of the market due to high stockpile levels and comparatively high prices – a stark contrast to conditions in the Asia-Pacific region which has seen met prices rise to approach the $200/tonne level. As it stands, premium A-grade US high-volatile coals are currently trading at ~$165/tonne, nearly $35 away from current benchmark prices. In our view, that discrepancy is unlikely to be sustained over the longer term, and the spread between US HVA and benchmark Australian low-vol will decline over time. It does, however, call into question the market’s overall legs, and while we previously felt benchmark prices may exceed $200 fairly soon, today’s action gives us some pause. We remain optimistic about met coal’s near-term prospects, but will need to see another week’s worth of data before adjusting expectations.

International coal indices moved up in concert once again, though their iterative effect on US markets remained muted. API 2 prices rose 0.4% to $84.40/tonne, and that equates to roughly $60/st on a CSX-basis. Natural gas prices, on the other hand, remain depressed due to tepid demand and lukewarm weather, and that continues to pull coal pirces in the opposite direction. As long as gas remains below $3/mmbtu, CSX coal will have significant difficulty competing at Southeastern utilities, and so export strength is the only factor keeping prices above the $56 level at this time. While US weather is beginning to improve, we won’t likely see much change in demand until the end of the month, and so expect CSX prices to move lower in the near-term unless global coal makes a significant push to the upside.