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U.S. coal exports to China may double in 2012: Xcoal
Thu, Apr 19 03:52 AM EDT

By Fayen Wong

BEIJING (Reuters) - U.S. coal exports to China could more than double to over 12 million tonnes in 2012 thanks to depressed freight rates and a fall in domestic demand in the United States, the chief of top U.S. coal exporter Xcoal Energy & Resources said.

The expected increase in coal shipments could further push down coal prices in Asia where a supply glut following a deluge from the United States and Colombia has forced prices to slump recently.

Australian Newcastle-grade coal has dropped $10 a tonne since end-February, the Indonesian coal reference price is down to its lowest in 16 months and South African coal has shed $5.

"Exports to China could reach over 12 million tonnes this year based on the annualized numbers," Chief Executive Ernie Thrasher told Reuters in an interview on Wednesday.

"We only have data for January and February now, but all anecdotal evidence so far suggests that there are no signs of that diminishing as the year goes on," he said.

"I think there is enough demand in Asia to absorb enough U.S. cargoes to stem a decline in prices."

Many U.S. coal sellers have set their eyes on Asia as a shrinking domestic market and tepid demand in Europe have pushed them to look for new customers outside of their traditional markets.

Total U.S. coal exports to China, the world's largest spot coal buyer, stood at about 5 million tonnes in the first two months of the year, with thermal coal shipments up 5.3 percent on year to some 3 million tonnes.

China, which relies heavily on coal for power generation, is the world's No. 1 coal producer, but infrastructure bottlenecks have forced many coastal power plants to turn to cheaper and more accessible imports in recent years.

Coal imports by the world's second-largest economy rose 11 percent on year to 182 million tonnes in 2011. Shipments from the United States were 4.9 million tonnes, a near 3 percent gain on year.

MARGINAL PLAYER

Thrasher said the United States was turning to Asia because of a drop in domestic demand.

"Demand for thermal coal in the U.S. has been crushed, or eliminated, and the current regulatory environment is really pushing utilities to move away from thermal," Thrasher said separately at the Coaltrans conference in Beijing.

Although still the largest single fuel for electricity generation, coal's share of monthly generation in the United States dropped below 40 percent in November and December 2011, a level not seen since 1978, data from the U.S. Energy Information Administration (EIA) showed.

The EIA forecasts coal demand by the power sector to fall by nearly five percent this year to 884 million short tons, the lowest level since 1995 as the fuel continues to be forced out by the flood of cheap gas following the shale gas boom.

Despite the expected increase in exports, the United States will be a marginal steam coal player in Asia compared with Indonesia and Australia because of limited port and rail capacity on the east coast.

A North Asian utility source said he has received calls from two U.S. coal sellers last week offering coal. Other trade sources said U.S. producers were in talks with Chinese buyers to seal some high-sulphur steam coal term deals for at least a dozen cargoes.

"People are skeptical about the numbers but the margins can still work if producers sell the higher calorific cargoes, which can help increase the margins because the sale price will be higher," Thrasher told Reuters.

He would not confirm if Xcoal was negotiating such term deals.

Chinese buyers are currently bidding at between $102-$104 a tonne CFR based on 5,500 Kcal NAR coal, traders said.

With Panamax vessel freight from the US Gulf of Mexico to China hovering around $50 a tonne and capesizes from the U.S. east coast at between $38-$40, the free-on-board price producers can get is around $64 a tonne.

(Editing by Sugita Katyal)


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