US Coal Markets Face Challenges as Weak Demand Hits Exports and Domestic Sales

The thermal coal market in the US is anticipated to face challenges in 2024, particularly in the export sector, with indications pointing towards a potential backwardation in prices. Global demand for thermal coal is currently subdued due to forecasts of warmer weather in the US and Europe, contributing to softening prices across various energy commodities such as LNG, natural gas, and oil.

One significant factor affecting the thermal coal market is the surplus inventory, creating an imbalance between supply and demand. Unless production is adjusted to align with demand, which may not happen until the second quarter of the upcoming year, prices are expected to continue weakening. This oversupply situation is reflected in the lackluster outlook for US spot coal prices in 2024, with South African coal offering competitive pricing and tough competition in the Indian market.

FOB Baltimore, 6,900 kcal/kg NAR coal pricing has shown a downward trend, with brokers indicating a decline from a January-loading price of $87/mt to $86.25/mt for Cal 2024. Similarly, indications for FOB New Orleans, 6,000 kcal/kg coal, dropped to $85/mt for January loading and $84.25/mt for Cal 2024. These trends signify a potential backwardation in US export thermal coal prices.

The softening demand is further exemplified by the fall in European coal generation in 2023, influenced by declining gas prices and a shrinking space for fossil fuel generation. While contracting for 2024 US thermal exports lags behind 2023, there is potential for growth in India and other South Asian and Southeast Asian markets.

Forecasts for gas prices in the PJM region anticipate a strengthening to $5.90/MMBtu in January 2024. This could constrain natural gas generation in the region, potentially moving coal generation into a more competitive position. However, uncertainties remain regarding the response of Central Appalachian coal prices to these dynamics.

Central Appalachia, which supplies the PJM electricity market, exhibits mixed sentiment for the year ahead. One broker envisions a slight backwardation in the CAPP rail coal market, with price indications at $72/st for Q1 delivery, $71/st for Q2, and $70/st for both Q3 and Q4. Another broker sees the market in a slight contango, with price indications at $73/st for both Q1 and Q2 delivery, $73.50/st for Q3, and $74.50/st for Q4.

For Illinois Basin coal, both domestic and export demand has moderated, resulting in a decline in spot physical coal prices. Brokers hold varying outlooks for Illinois Basin coal through 2024, with limited price movement anticipated.

In the subbituminous coal segment, Powder River Basin prices are expected to increase in 2024. Forecasts indicate prices for PRB 8,800 Btu/lb coal at $14/st for Q1 and Q2 delivery, $14.05/st in Q3, and $14.15/st in Q4. This basin supplies the MISO region, where coal consumption is projected to increase nearly 6 million st in 2024.