US coal at crossroads

When it comes to the production of coal, the US is a shining example: according to the US Energy Information Administration (EIA), the world’s second-largest export economy produced 728m tonnes of it in 2016. However, the country’s record of exports of the product is less glowing. Despite coal exports from the US hitting a record high of 126m short tonnes in 2012, the figure declined after that point, and by 2016, only 60m tonnes of the product left the US for foreign climes. This was equivalent to around just 8% of the country’s coal output.

Recently, though, there has been an indication that the damage is being reversed. According to EIA’s Quarterly Coal Report published in June, in the first quarter of 2017, the US’ coal production totalled 197m short tonnes. The figure, although slightly lower than that of the previous quarter, marked a 13.9% increase compared to Q1 2016. Exports were up on previous quarters too. Data from Thomson Reuters Supply Chain and Commodity Forecasts, at the time of publication, shows that US coal shipments were 51.9m tonnes in the first seven months of 2017, marking an increase of 21.3% on the same period from 2016. In Q1 2017, the country exported 22.3m short tonnes of coal – nearly 10m short tonnes more than the third quarter of 2016, EIA said.  However, the country still has a long way to go to hit the record figure from Q2 2012, which saw 37.5m short tonnes of the product shipped abroad.

Good fortune seems short-lived

It will be even harder for America to reach this high level of exports if Reuters columnist Clyde Russell’s predictions are anything to go by. In a recent column, Mr Russell said that the current hike in exports is being supported by a number of factors that are likely to be temporary. Chinese domestic policies – the closure of inefficient mines and a reduction in hydropower output – have partly been responsible for creating an import demand for coal, consequently resulting in global price increases, Mr Russell explained. However, this demand will soon be reduced due to Chinese encouragement of increased coal production, as well as hydropower likely recovering once weather-connected limitations relax.

There are other countries besides China where temporary factors, signalling good news for coal exporters, have arisen. According to Mr Russell, coking coal shipments from America have been boosted because Australia’s were disrupted by Cyclone Debbie in March this year. Now that the damage has been repaired, competition with Australia is back on, Mr Russell said.

Another area where coal exporters have reaped benefits is in US exports of coal to France, which doubled in the first five months of 2017, according to EIA. However, in his column, Mr Russell explained that nuclear power outages in the country have meant that France, as well as neighbouring countries, have needed to use more coal for their power.

“But, similar to Asia, these are likely temporary factors and once they fade it’s likely that seaborne coal prices will retreat,” Mr Russell said.

Furthermore, as coal is often transhipped from European ports before consumption, it is difficult to work out the final destination of exports.

The US is a swing supplier of coal, and further exports greatly depend on whether prices in Asia are high enough to make the economics viable for sea transport. At the price it is currently at, US coal can be competitive in Asia, but miners will only just be able to export to the continent, taking account of freight costs. This is where the big coal exporters of Australia and Indonesia are at an advantage, given that the costs for both production and freight costs for cargoes for Asian customers are smaller for them.

Consequences of increased US exports

Despite the fact that the future outlook for coal remains uncertain, many have given their opinion on the consequences of the current increase in US coal shipments abroad. Both the coal industry and the Trump administration have said that increased exports of steam coal and metallurgical coal are proof of the positive impact of Trump’s agenda.

“These numbers clearly show that the Trump Administration’s policies are helping to revive an industry that was the target of costly and job killing overregulation from Washington for far too long,” Shaylyn Hynes from the US Energy Department said to Reuters.

Speaking to Baltic Briefing, EIA analyst Elias Johnson also gave his opinion on the figures, saying that “lower production costs have made US exports more competitive in the global market”.

Clearly, it remains to be seen whether the US will become an important exporter of coal, and what impact this might have on those involved in this industry.  However, Mr Johnson said EIA expected the export hike to be temporary.

“EIA expects growth in coal exports to slow in the coming months, with exports for all of 2017 forecast at 70 million short tons, 10 million short tons (17%) above the 2016 level, but the level of exports in 2018 is expected to be near the amount exported in 2016 (approximately 60 million short tons),” he said.

The US coal industry could move in either direction with regards to the current increase in demand. On one hand, it could become a significant part of the global coal trade. On the other hand, it could find its exports decreasing, just as it did after the high of 2012. Whatever the outcome, it is clear that it is a sector to watch in the coming months.