Depressed US coal prices make physical deals difficult: executives

Miami (Platts)--6Feb2015/426 pm EST/2126 GMT

US coal industry leaders who gathered at the 15th annual Coaltrans event this week in Miami say depressed prices have made physical deals difficult to seal.

"A number of companies are interested in doing deals, but don't want to do them at [over-the-counter] prices," said one Eastern fuel buyer. "Traders are willing to do them, but producers can't take that risk."

OTC Central Appalachia barge and CAPP rail (CSX) prices in 2015 through Thursday as assessed by Platts have averaged $46.66/st and $48.33/st, respectively. The two prices are down 21% and 23.1%, respectively, compared with the full quarterly average from 2014.

That drop has made OTC prices just a "starting point" for making physical deals, Colin Marshall, CEO of Gillette, Wyoming-based Cloud Peak Energy, said in an interview after a presentation at the conference.

"It's a very thin market," Marshall said. "It can get moved by a single trade of 15,000 st of coal. When we look at bidding stuff, we look at the relation of where the OTC is and go from there."

Utilities, meanwhile, are concerned about the impact of volatile natural gas prices on their customers, who could see energy prices increase if more gas goes into the generation mix.

"From a utility perspective, we are all for a more diverse fuel portfolio," the Eastern fuel buyer said. "What happens when gas goes to $10/MMBtu? Can ratepayers handle going from 10 cents/kWh to 15 cents/kWh?"

But gas-fired plants have become the "only viable alternative that regulators will allow [utilities] to build," the fuel buyer said.

In Appalachia, producers are oversupplied and stuck with physical coal that is difficult to unload, one CAPP producer said.

"We've got our thermal coal contracts in place -- our focus is on metallurgical coal production," the producer said. "If you don't have your thermal coal sold yet, you've got a problem."

Prices have been relatively stable recently, however, giving US producers a better option than for export or domestic thermal coal.

The price for FOB US East Coast low vol met coal has averaged $110.75/mt since the start of 2015, compared with $112.92/mt in the fourth quarter of 2014 and $133.16/mt in the fourth quarter of 2013.

--Jeffrey McDonald, jeffrey.mcdonald@platts.com
--Edited by Keiron Greenhalgh, keiron.greenhalgh@platts.com

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