Commodities 2023: US thermal coal exports may struggle amid self-sufficient Asia

US seaborne thermal coal exports are expected to remain slightly softer in 2023 as demand from Asia wanes and supply-side concerns take a back seat with the availability of additional Russian tonnages, market sources told S&P Global Commodity Insights.

"Demand for US coal is surely depleting from South Asia and Southeast Asia, especially after how Russian coal has made a sort of backdoor entry in terms of supply," a large buyer of US coal in Asia said. "Coal from Russia is also coming at very competitive prices to China and India, eroding the US coal market, and the trend is likely to continue going into 2023."

With Europe sanctioning Russian coal in 2022 due to its invasion of Ukraine, additional cargoes available from Russia were largely purchased by China and India as they were offered at hefty discounts. While the trend continues, the discounts have come down to some extent.

In 2022, Russian coal displaced about 6.6 million mt of US thermal coal at cheaper-than-prevailing prices in markets like China and India, according to S&P Global data.

"Import demand by European thermal buyers, while having increased over 5.7 million mt to 11.3 million mt in 2022, has not fully made up for this decline, remaining around 1.2 million mt per month (most recent three-month average)," according to the December US coal market forecast by S&P Global.

Meanwhile, China and India are likely to boost domestic production in 2023, which could have a bearish impact on US seaborne coal demand.

S&P Global forecasts China's 2023 domestic coal production at 4.9 billion mt, up from 4.5 billion in 2022. India's coal production is projected at 950 million mt in 2023, up from 840 million mt on the year.

Price impact

"Europe is taking good amount of coal from the US and at a decent price, definitely better than what Asia could afford, so prices will remain at mid-to-high levels," the buyer said.

According to S&P Global, most global coals are expected to maintain price strength in the first quarter of 2023.

"I think a decent number of cargoes will be available next year from the US market, especially in the first half, with good consumption of gas expected," a second large buyer of US coal said. "Availability will be good from other origins, and therefore consumer side will have ample options."

The second buyer expected 2023 US coal prices to decrease from 2022 levels.

"In terms of prices, I feel there will be a correction from the levels we have seen this year," the second buyer said. "The effects of the war are stabilizing, and next year trade flows will settle down. With more supply available worldwide, US coal prices will also remain in check."

Production and consumption

The Energy Information Administration estimates US coal production will decrease 9% on the year to 539.2 million st in 2023.

"Uncertainty in macroeconomic conditions could significantly affect energy markets in the forecast period," the EIA said in its December short-term energy outlook.

US domestic coal consumption is expected to decrease in 2023 amid increased electricity generation from renewables, according to the EIA data. The EIA projects the US will generate 952.6 billion kilowatt-hours from renewables and 770 billion kilowatt-hours from coal in 2023, compared with 882.3 billion kilowatt-hours and 824.6 billion kilowatt-hours, respectively, in 2022.

Power sector coal consumption is projected at 469.8 million st in 2022 and 438.8 million st in 2023. The EIA projects total coal consumption at 512.1 million st in 2022 and 477.8 million st in 2023.