Continued competition and economic uncertainty to reign in coal market optimism in 2021
There is optimism for coal markets in 2021, but the extent of it remains unknown given competing factors and continued economic uncertainty, Andy Blumenfeld, heads of market analytics at IHS Markit, said March 10.
“In terms of the outlook, a recovery is happening and it’s quite considerable,” Blumenfeld said at the American Coal Council 2021 Spring Coal Forum. “There’s a lot of optimism.”
S&P Global Platts Analytics projections match Blumenfeld’s optimism with utility coal burn expected to increase approximately 95 million st year on year to 522 million st in 2021 and bullish expectations for prices compared with last year.
Largely, Blumenfeld was bullish on pricing. Although, increased freight rates are a “fly in the ointment,” he said.
While the freight markets have been very excited about the change and increased demand, Blumenfeld said, “for coal, it’s a double-edged sword.” Prices, excluding those for FOB sellers will increase; however, there will be more competition with LNG.
“We’re starting to see a tradeoff in Europe and Asia between LNG and coal because LNG has come down and freight has gone up on coal,” he said.
Otherwise, price improvements have been observed in the domestic market, excluding the Powder River Basin, which has been flat for the past few months.
Improved coal demand
Coal share generation in the US is expected to increase year on year, partially aided by continued higher prices of natural gas.
Gas is expected to remain in the high-$2/MMBtu-$3/MMBtu range, which would be meaningful for coal-fired generation, Blumenfeld said. Additionally, given the anomaly of 2020 and the shutdowns, there will be a year-on-year rise in generation all-around.
“The question is how much,” Blumenfeld said. “At this point, looking at the numbers, expectations are fairly strong.” However, overall, coal demand in the US is expected to exceed supply in 2021 as inventories have dropped and coal burn is expected to increase.
While Blumenfeld estimated 480 million st-500 million st of utility burn this year, depending on weather and other factors. Platts Analytics estimated end-of-year inventories of about 134 million st and expects a further decline of about 26 million st at the end of 2021.
Longer-term, however, there is a strong downward trend following the 2021 rebound as coal capacity retirements continue.
By 2025, Blumenfeld estimated a 30% decline in capacity, largely from already announced retirements.
Exports, as well, are expected to have a better year with a projected 30 million st of thermal, mainly Northern Appalachian and Illinois Basin, exports.
“There’s a bullish case out there,” Blumenfeld said, and it depends somewhat on how LNG prices move this year.