Following shutdowns driven by the coronavirus pandemic in March and April, US thermal coal production and demand began to increase in June, providing optimism over long-term relief for coal producers, according to S&P Global Platts Analytics.
US production increased in June for a second consecutive month, according to Platts Analytics. “However, as a number of states implement fresh lockdowns due to the coronavirus pandemic, we are cautious production will continue to improve in the short-term,” it said in a July 20 report.
Platts Analytics increased its US domestic coal output forecast by 83 million st to 620 million st for 2020 as production has started to recover from the lows of April and May. “It is estimated all basins are showing a recovery in production in June,” according Platts Analytics’ International Forecast, published earlier in July.
As the decline in domestic coal demand from utilities narrows, dropping to 15% down year on year in June compared with 30% in May, prices will rise.
“We believe US coal producers are currently producing on operating costs alone at the moment, meaning producer margins are very thin, or in some cases in the [Northern Appalachian] basin, are in negative territory,” Platts Analytics said in its forecast. “We believe this is unsustainable for coal producers and, as coal demand from utilities returns, this will help support an increase in coal prices.”
Additionally, utilities are believed to have deferred deliveries in the second quarter, which will have to made up for in the third and fourth quarters as a number of them are annual supply agreements.
Currently, however, the increase in production has impacted stockpiles, boosting inventories alongside lower coal burn in power generation. According to the report, stockpiles were an estimated 153 million st as of June 18, up 48 million st year on year.
That said, by the end of the year, Platts Analytics projects a return to near pre-pandemic load trends, calling for a 20% year-on-year increase in coal-fired generation, followed by further growth in the first quarter of 2021,” the forecast said.