Peabody Energy predicts higher prices for seaborne thermal coal due to energy demand and inventory levels. Demand remains strong while supply is constrained. Metallurgical coal market outlook also positive. U.S. market shows decline in electricity de...
Troy D. Hanson
July 30, 2023
Peabody Energy foresees higher prices for seaborne thermal coal this year, driven by the expected summer energy demand and the build-up of inventories for the upcoming winter.
Volatility and Normalization
During the second quarter, seaborne thermal coal markets experienced volatility, resulting in price declines. This can be attributed to the abundance of coal and natural gas inventories in the northern hemisphere following an unusually warm winter. However, the company anticipates that the onset of peak summer energy demand, followed by restocking in preparation for winter, will lead to a normalization of inventory levels. As a result, seaborne thermal coal markets are likely to receive support.
Robust Demand and Supply Constraints
The demand for seaborne thermal coal remains robust, while supply continues to be constrained across major supply regions. This combination contributes to the overall favorable outlook for the market.
Seaborne Metallurgical Coal Market Outlook
The supply of metallurgical coal has been restricted due to the residual impacts of wet weather events in Queensland during the first quarter of 2023. Despite this constraint, the outlook for the metallurgical coal market remains positive.
Stable Supply and Increasing Import Demand
The seaborne supply of metallurgical coal remains stable. Additionally, there are anticipated increases in import demand for steel-making raw materials due to improving crude steel production rates in Europe and North Asia, as well as growth in Indian steel production rates.
Global Crude Steel Output
In the second quarter, there were variations in global crude steel output. While European blast furnaces experienced interruptions, there was notable year-on-year crude steel production growth in both China and India.
U.S. Market Outlook
No specific information provided regarding the outlook for the U.S. market.
Electricity Demand and Coal Inventories in the United States
In recent years, the United States has experienced a decline in overall electricity demand, which decreased by nearly 4% year-over-year. This can be attributed to various factors, particularly unfavorable weather conditions. As a result, the demand for electricity generated from thermal coal has also declined. The availability of low gas prices and the consistent production of renewable energy have played a role in this decrease.
During the six months leading up to June 30, 2023, there has been a notable increase of approximately 50% in coal inventories. However, the decline in electricity generation from thermal coal remains significant. On a positive note, natural gas prices have witnessed a modest recovery from earlier lows, with U.S natural gas prompt pricing reaching U.S. $2.65/mmBtu.
Looking ahead, there is an expectation of an improvement in near-term demand for U.S. thermal coal during the third quarter compared to the second quarter of the year.
Seaborne Thermal Coal Shipments and Prices
In terms of seaborne thermal coal shipments and prices, forecasts indicate that volumes are anticipated to reach approximately 4.2 million tons. Out of this, around 2.7 million tons will be allocated for export purposes. Within the export segment, 0.3 million tons will be priced at $181 per ton. Additionally, there will be around 1.4 million tons of high ash product and 1.0 million tons of Newcastle product that remain unpriced. The estimated cost range for these shipments is anticipated to be between $45 and $50 per ton.
Seaborne Metallurgical Coal Shipments and Prices
For seaborne metallurgical coal shipments, an estimated volume of 1.5 million tons is expected. Out of this volume, 0.2 million tons will be priced at $216 per ton. The remaining unpriced volumes are projected to achieve 70% to 80% of the premium hard coking coal price index. The cost range for these shipments is estimated to be between $115 and $125 per ton.
U.S. Thermal Coal Shipments and Prices
Regarding U.S. thermal coal shipments, it is anticipated that PRB volume will approximate 21 million tons, with an average price of $13.80 per ton. The associated costs are expected to be approximately $11.75 per ton. Furthermore, other U.S. thermal volume is projected to reach around 4.2 million tons at an average price of $50.50 per ton, with costs estimated at approximately $41 per ton.
In conclusion, the current outlook suggests a decline in electricity demand and thermal coal generation in the United States, primarily influenced by weather conditions and the availability of alternative energy sources. However, there are expected improvements in near-term demand for U.S. thermal coal, as well as seaborne thermal and metallurgical coal shipments.