Commodities 2024: US export, domestic thermal coal markets face headwinds amid mild demand

US export thermal coal prices are likely to be backwardated in 2024 amid mild global demand, but sentiment is mixed on the outlook for the domestic market, where an increase in natural gas prices could boost coal consumption.

Warmer weather forecasts in the US and Europe have contributed to softening prices across the global energy complex, including LNG, natural gas and oil indices, a US coal source said.

"There is just too much inventory, and unless you cut production to match the demand, which will not happen until maybe Q2 next year, prices will continue to weaken," the source said.

A US coal buyer based in India said the pricing outlook for US spot coal going into 2024 is lackluster.

"The price is dropping in the Indian market because South African coal has a lot of cargoes available and they are offering at a very discounted, very competitive price," the buyer said. "Petcoke is also dropping ... giving tough competition to [Northern Appalachian] prices."

Broker indications showed FOB Baltimore 6,900 kcal/kg NAR coal pricing falling through the new year. One broker saw indications sliding from a January-loading price of $87/mt to $86.25/mt for Cal 2024, while another broker indicated pricing dipping from $84.75/mt for January to $80/mt for Cal 2024.

Sources also saw backwardation for US Gulf Coast coal prices.

One broker's indications Dec. 28 showed FOB New Orleans 6,000 kcal/kg coal at $85/mt for January loading and $84.25/mt for Cal 2024; while a second broker's indications saw prices at $81.50/mt for January loading and $76.25/mt for Cal 2024.

In its December US Coal Market Forecast, S&P Global Commodity Insights said it expects US thermal coal exports to dip from a forecast 43.6 million mt for full-year 2023 to 35 million mt in 2024 "as Pacific Basin supplies dominate moderating demand from China, and Atlantic Basin demand continues to decline."

S&P Global noted European coal generation fell sharply in 2023 as gas prices declined and "the space for fossil fuel generation shrank, with 2024 likely to see little upside." The analysts wrote that while contracting for 2024 US thermal exports remains behind 2023, upside potential exists as US suppliers target growth in India and other South Asian and Southeast Asian markets.

Mixed sentiment for 2024 OTC prices

High electric power sector coal stockpiles exerted downward pressure on US over-the-counter coal prices throughout 2023, but coal generation could become more competitive in 2024 if natural gas prices increase.

"The declines in 2024 spot and contract coal prices are spilling into 2025 (with forward contracting) even as natural gas prices are forecast to rise further," S&P Global said. "This may lead to, at the very least, a plateauing of US thermal coal demand."

S&P Global expects gas prices to strengthen in the PJM region to $5.90/MMBtu in January 2024, which would "constrain some natural gas generation in that region through the period, moving coal generation into increasingly competitive position. It remains to be seen, however, how CAPP coal forecast prices will respond."

Coal produced in Central Appalachia supplies the PJM electricity market, the largest in the US. The latest broker indications of value for Central Appalachia 12,500 Btu/lb CSX rail coal reflected mixed sentiment for the year ahead amid the unknown impact of gas prices on the OTC market.

One broker's sees the 2024 CAPP rail coal market slightly backwardated, with Dec. 28 price indications at $72/st for Q1 delivery, $71/st for Q2, and $70/st for both Q3 and Q4.

A second broker sees the market in a slight contango, with price indications at $73/st for both Q1 and Q2 delivery, $73.50/st for Q3, and $74.50/st for Q4.

For Illinois Basin coal, S&P Global said domestic and export demand has "moderated," and noted the "decline in spot physical coal prices continues."

Again, brokers were mixed on their outlook for ILB coal through 2024, but saw limited price movement.

The first broker's indications for Illinois Basin 11,500 Btu/lb barge coal put the price at $43/st for Q1 delivery, $43.25/st for Q2 delivery, and $43/st for Q3 and Q4.

The second broker's indications showed ILB 11,500 Btu/lb barge coal at $43.75/st for both Q1 and Q2 delivery, and $44.75/st for both Q3 and Q4.

For subbituminous coal, sources agreed Powder River Basin prices are likely to increase in 2024.

The first broker's indications of value showed PRB 8,800 Btu/lb coal at $14/st for Q1 and Q2 delivery; $14.05/st in Q3; and $14.15/st in Q4.

The second broker's indications of value showed prices at $13.85/st for Q1 and Q2 delivery, and $13.95/st in Q3 and Q4.

Powder River Basin coal supplies the MISO region, where coal consumption is projected to increase nearly 6 million st in 2024, according to S&P Global data.

"We believe suppliers and utilities have negotiated for 2024 contract prices around $14.25/st (Q1 2024 average forecast) to lock in solid margins," S&P Global analysts said.

S&P Global forecasts US coal production to dip from 580 million st in 2023 to 540 million-545 million st in 2024 as a "stockpile drawdown begins in earnest."