(Repeats with no changes to text. The opinions expressed here
are those of the author, a columnist for Reuters.)
By Clyde Russell
LAUNCESTON, Australia, April 10 One of the big
hopes for a revival of the U.S. coal industry since the election
of President Donald Trump is increasing exports. Right on cue,
it looks likely that more of the fuel will be shipped to foreign
But this is a short-term boost and will benefit only a few
U.S. coal miners, with the rest having to deal with domestic
demand trending lower. The grim reality is that they can't
compete with exports from lower cost producers around the globe.
While Trump may have declared an end to what he termed the
"war on coal" of his predecessor Barack Obama, the U.S. coal
sector is unlikely to export its way back to robust health.
This is simply because U.S. coal producers are too expensive
to compete on global markets, especially in Asia, the region
where coal demand is growing fastest and likely to remain the
only bright spot in a world increasingly trying to move away
from the polluting fuel.
The short-term boost to U.S. coal exports is virtually all
down to Cyclone Debbie, a category four storm that closed mines
and damaged infrastructure in eastern Australia's Queensland and
New South Wales states, when it made landfall on March 28.
Queensland accounts for about 60 percent of Australia's
exports, including the majority of coking coal, the
higher-quality fuel used mainly in steelmaking. Australia is the
world's largest exporter of coking coal and second to Indonesia
in thermal coal, used mainly in power plants to generate
While the majority of mines were able to restart operations
fairly quickly, it's taking time for the rail infrastructure to
be repaired, meaning there is a shortage of coal for export.
This has sent prices soaring, with coking coal futures in
Singapore - priced off the spot assessments for
free-on-board Australian cargoes - soaring 77 percent from the
day Debbie struck to a peak of $275 a tonne on April 6.
Thermal coal prices also rose. Even though shipments of the
this grade of fuel from Australia weren't nearly as badly
affected by Debbie, the benchmark weekly index rose
9.1 percent in the week to April 7 from the week prior to the
While thermal coal supplies from Australia may be slightly
constrained in coming weeks, the main issue is in coking coal.
Chinese, Japanese, South Korean and Indian steelmakers are all
scrambling to source alternative supplies.
The Chinese will look first to neighbouring Mongolia and
Russia, while the others will cast a wide net - including as far
as the United States.
This is a boon to U.S. coking coal producers, many of whom
are located in the Appalachian mountains, the region that has
borne the brunt of the decline in domestic coal consumption.
Assuming these miners can ramp up production, they likely
have a six-week to two-month window to lock in exports at higher
prices before Australian mines can resume normal deliveries.
As much as 15 million tonnes of Australian coking coal may
be lost to the market from Debbie. That's significant, but still
below the estimated 25 million tonnes lost to Cyclone Yasi in
2011, which prompted spot prices to rise to above $330 a tonne.
U.S. EXPORTS MOVING UP
There does appear to be an uptick in U.S. exports already in
April, with Thomson Reuters Supply Chain and Commodity Forecasts
estimating that 6.8 million tonnes has already been booked for
shipment in the month.
Given only one-third of the month has passed and more
cargoes are certain to be booked, this looks strong compared to
the 7.56 million tonnes exported for the whole of March.
Last month was already the highest monthly total recorded
since January 2015, the starting point for Thomson Reuters
vessel-tracking and shipping data.
U.S. coal exports have been on a declining trend, with
2015's 75.36 million tonnes slipping to 65.77 million last year.
This is largely because of lower purchases from top
destination Europe, where U.S. thermal coal struggles to compete
against similar quality coal from Colombia and South Africa.
U.S. coking coal remains sought after by European steel
mills and is competitive against supplies from Russia, the main
alternative for Europe given Australia is too distant and
freight costs would be too high.
But U.S. thermal coal is unlikely to able to compete
anywhere around the globe, given the higher cost of production.
Data from consultants CRU show the that weighted average
business cost for U.S. thermal coal, or the price where 50
percent or more of operations in the country are making positive
cash flow, lies at $83.22 a tonne.
This is well above $39.49 a tonne for Colombia and the
$48.73 for South Africa, showing that even with a slight
seaborne freight advantage, U.S. thermal coal cannot even
compete in Europe, far less Asia where the shipping costs would
be much higher.
Australia's weighted average business cost for thermal coal
is $53.98 a tonne, and for coking coal it's $67.34, according to
the CRU figures.
The U.S. coking coal cost is $86.62, which shows that it can
be competitive globally, even with higher freight costs - as
long as the coking coal price remains at elevated levels.
Coking coal enjoyed a strong rally last year on the back of
strong Chinese demand as steel production rose in the world's
second-biggest economy and domestic coal output dropped because
of policy constraints.
Since peaking around $300 a tonne in November, coking coal
has retreated and appeared to be finding a base around $155 a
tonne. But that was before the arrival of Debbie.
When Australian supplies return to normal, it's likely that
coking coal will once again head back to around the $150 mark,
and possibly even lower given the uncertain outlook for China's
steel sector this year.
This will make it harder, but not impossible, for U.S.
coking coal miners to compete in Asia, and they are always
likely to be the supplier of the marginal tonne to the region.
Unless U.S. coal miners can find a way to significantly
lower their costs, the simple truth is that they cannot compete
globally in thermal coal, and will struggle to compete in coking
coal outside the European market.
(Editing by Kenneth Maxwell)