US met coal suppliers bank on continued export growth supported by Asia steel output

US metallurgical coal exports have seen growth fueled by Asian demand over the past few years. The potential for seaborne volumes to grow hinge on expansions in blast furnace steelmaking and met coke production in India, China and Southeast Asia.

With the projected economic expansion in emerging Asian markets, long-term steel demand is also anticipated on the back of increased activities in construction and infrastructure as well as higher local auto and consumer products demand.

To help meet Asian and global steel and coke demand, as well as reduce the market's reliance on Australian miners and address potential supply disruptions, new US mines such as Arch Resource's Leer South and the AMCI, POSCO and Itochu-led Allegheny Met's Longview mine have come online. These and other US mines are ensuring buyers become accustomed to their coal specifications, so they can be utilized in coke blends.

Alabama mines such as Warrior Met Coal's Blue Creek No. 4, Peabody Energy's Shoal Creek, and Consol's West Virginia-based Itmann, as well as new mines and expansion projects from Alpha Metallurgical Resources and Coronado Global Resources, are also helping to meet demand amid resource depletion. They are adding to capacities and bringing on grades including lower ash, sulfur and higher coking qualities, which may be helpful for blending.

This could reduce the need for lower quality and higher ash coals in steelmaking, the use of which may lead to higher carbon emission intensity due to the greater volumes of lower grade coals needed in iron making.

US spot met coal export prices are increasingly shaped by Asian demand, and affected by the cost of freight rates to enable competitiveness for US coals in Asia. This is on top of pricing and demand related to serving key markets in Europe, Turkey and Brazil.

India, which wants to double steel production this decade, was the largest US seaborne met coal export market in 2023. Asia, excluding Turkey, made up more than half of US exports.

Europe's met coal demand weakened in 2023, even though lower and less volatile spot prices for US coking coals and sanctions on Russian coal products including anthracite and grades for pulverized injection use, drove up demand for some US qualities. US coals were mainly supplied under long-term contracts.

Seaborne pricing, US trade at prevailing market conditions

Reference Platts spot coking coal prices from 2023 through April had been stronger than long-term averages, according to S&P Global Commodity Insights data, supporting trade into Asia. US trade into Asia also was seen for marginal met coal qualities and exports for new trials at special terms to get more plants accustomed to US coals.

US grades like high-vol A and premium low-vol brands have different specifications to coals being used in coke batteries in Asia.

A wider range of US coals have seen an increase in trials across Asian and Atlantic markets. Trials were reported by market participants in various coke batteries, including stamp charging plants that can require less premium and high fluidity coals compared with gravity charging coke plants.

Prices agreed into India's growing spot met coal business have become a bigger global reference, even though US trade may see a mix of FOB index pricing formulas with agreed freight differentials, as well as CFR pricing terms, on both index and fixed pricing basis.

The freight differential discussed by US miners to be competitive on a FOB basis with Australian coal into Asia had recently expanded into the high $20s/mt from the low $20s/mt range.

US coals trading into Asia typically reference Australian PLV FOB Australia indices, as well as second-tier indices and US export indexes, to establish outright and indirect pricing terms, depending on the coal.

Weaker demand out of China and India since March had led global spot coking coal prices to fall, with the higher freight costs from the US to Asia making US trade less attractive for miners.

Supply with grades unable to closely track reference coking coal prices, and those with high mining and logistics costs for exports from the US, may see limited convergence with benchmark spot trade levels.

Headwinds from port, rail logistics

Tight US rail and port capacity has long proved to be a talking point in coal trade, with rail performance pressured by changes in capacity, qualified personnel, and rolling stock investments to meet changes to rail product business demand.

The halt to shipments of coal from Baltimore late March on the collapse of the Francis Scott Key Bridge and closure of the shipping channel follows disruption at the CSX Curtis Bay Piers terminal in Baltimore due to an explosion on New Year's Eve in 2021. These incidents led more Northern Appalachian coals from Pennsylvania, northern West Virginia and Maryland to be trans-routed to Hampton Roads terminals served by the CSX and Norfolk Southern railroads.

Even with a current slowdown in spot met coal demand, various terminals' rail service and stockpile arrangements with loading operations mean there is a limit to upside on other ports serving vessels rerouting from Baltimore. Buyers demanding more coal at those terminals under revised loading programs may also find some limited options, depending on grades and suppliers.

US coal shipments to Asia primarily use the Cape of Good Hope route. Some earlier coal shipments via the Suez and Panama canals to meet end-user demand or reduce timing between loading and discharge were complicated by higher costs and lower interest from shipowners, as well as current restrictions due to lake water levels in Panama.