The slide in coal markets entered its third month as seasonal demand for electricity largely failed to materialize, according to a recent report by SNL Energy.
“Absent a push from current demand and with natural gas prices weakening, utilities are waiting out the summer before building stockpiles,” the report said. “The NYMEX CAPP prompt-month benchmark fell $1.60/ton, or 2.5%, while NYMEX PRB lost 55 cents/ton, or 5%. Physical markers showed stronger price erosion, with Northern App shedding 80 cents/ton to $1.00/ton and Illinois Basin losing $1.45/ton to $1.70/ton. Central Appalachian high-Btu markers lost $2/ton to $3/ton as ongoing weakness in seaborne metallurgical markets reduced cross-over prospects.”
Modest electricity demand pressured natural gas as well, with gas injections to storage gaining momentum during July, the report added.
“While incremental supply of more than 6 Bcf/d is still needed to balance storage by summer’s end, weak demand leads many analysts to expect stronger-than-normal injections over the next few weeks,” the report said. “This precipitated a sharp drop in Henry Hub spot prices to $3.80/MMBtu during July. With many shale gas hubs discounted to Henry Hub, displacement of Appalachian coal comes into play for the balance of summer.”
Calendar-year 2015 pricing for spot transactions remains strong despite recent price erosion, according to the report.
“The charts shows PRB 8800 in a continuing upward trend, firming above $14/ton over the next two years, as domestic fuel switching and competitiveness against natural gas provide a boost to demand,” the report stated. “NYMEX indications for PRB 8800 are available through 2016, with the SNL Energy long-term forecast results picking up in 2017. By 2016, SNL Energy forecasts that PRB price growth will level off as export markets mature and retirements in coal-fired generation cut into domestic swing volumes, creating greater price competition.”
After a strong start to 2014 spot CAPP coal pricing has been hit by the entry of Illinois Basin volumes, lower-than-expected export, and slowing domestic demand, the report said.
“While market conditions should improve somewhat in 2015, the next wave of coal retirements narrows the window for revenue growth in 2016 and beyond,” it said. “The market-indicative period for bituminous coal markers is through the end of 2016 for NYMEX CAPP and through 2015 for the NAPP and ILB markers.”
Keep reading the full report and analysis here: http://www.snl.com/InteractiveX/Article.aspx?cdid=A-28820027-13103
(Fred Pace is the Editor for the Coal Valley News. He can be contacted at firstname.lastname@example.org or at 304-369-1165, or on Twitter @fcpace62)