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Interview with Ted O'Brien, CEO, Doyle Trading Consultants

Ted O’Brien talks to Coaltrans about the future of U.S. coal in Japan and the emergence of a few new producers as significant players in U.S. coking coal supply.



Coaltrans Conferences (CC): When you participate in Coaltrans Japan next month, you will discuss the viability of the U.S. as an exporter of coal to Japan.  Is there a future for U.S. to supply coal to Japan?

Ted O’Brien (TO):  The relationship between U.S. coal producers and Japanese coal buyers has been very important for both sides.  U.S. producers value the long-term view Japanese buyers take when procuring coal, and their ability to look beyond short-term price moves as a reason to buy certain coals.  Japanese buyers value the reliability of supply from the U.S. and the premium quality of coal the U.S. offers, particularly coking coal.  This important relationship will continue for many years.


CC: How much coal does the U.S. currently export to Japan?

TO:  U.S. government trade data is available through June 2016, and in Jan – Jun 2016 the U.S. exported 1.84 million short tons of coal to Japan, down 17.79% YoY.  Total exports to all destinations are down 32.02% YoY, so exports to Japan are performing better than total U.S. exports.


CC: Is there a difference between how thermal coal exports and coking coal exports are trending?

TO:  A big difference.  Jan – Jun coking coal exports to Japan total 1.65 million short tons, down just 10.63% YoY, while thermal coal exports total 190K short tons, down 51.52% YoY.  The difference in their performance should not be surprising.  Thermal coal is a much more homogenous commodity and given Japan’s proximity to Australia and Indonesia, U.S. coal was not as competitive on a delivered basis as other suppliers.  Coking coal is a different story.  The U.S. has some very premium grades of coking coal (such as high fluidity) that are more difficult to find elsewhere.  Even though it may have been cheaper for Japan to buy more material from Australia, buyers needed certain grades of U.S. coking coal for their blends. 


CC: Are bankruptcy proceedings impacting U.S. coking coal supply?

TO:  In a very big way!  Producers that accounted for roughly 59% of total U.S. coking coal production have gone through/are going through a bankruptcy restructuring.  The U.S. remains the second largest seaborne supplier of coking coal (albeit a distant second behind Australia), and it is phenomenal to see such a large share of U.S. coking coal supply go through the bankruptcy process.  A few new producers have emerged as significant players in U.S. coking coal supply:

• Blackhawk Mining, which acquired the bulk of Patriot Coal’s active coking coal operations;
• Contura Energy, which acquired the Nicholas, McClure, and Toms Creek complexes from the Alpha Natural Resources bankruptcy;
• Coronado Coal, which bought the Logan County mines from Cliffs Natural Resources in December 2014 and then Buchanan from CONSOL earlier this year;
• VCLF/ERP Compliant Fuels, which bought the Oak Grove (AL) and Pinnacle (Capp) longwalls from Cliffs Natural Resources and the Maple and Gauley Eagle properties (Capp) from Walter Energy;
• Warrior Met Coal, which now owns the former Walter Energy No. 4 and No. 7 longwalls in Alabama;


CC:  How have the restructurings impacted U.S. coking coal prices?

TO:  The creditors have accelerated production cuts at loss-making coking coal mines, and the sharp supply reductions (DTC forecasts 2016 U.S. coking coal production of 50 million short tons, down from 65.24 million short tons in 2015) have created a supply tightness that is pushing prices higher.  Many of the mines that were closed had significant stockpiles, so there was a delay in the mines being closed, and the impact of the closure being felt on the market.  Stockpiles were drawn down in Q1/Q2, and the supply tightness is just starting to be felt in earnest.  It is most evident in premium qualities of high vol coking coal, with indications buyers will need to pay a price in excess of current Australian premium hard coking coal spot indexes.  There is not much excess coal available through Q4, so prices should be well supported through the end of the year.


CC:  Thank you for your insights!  Is there anything else you’d like to add?

TO:  I look forward to sharing our views on these topics and more at Coaltrans Japan next month.  Thank you for the opportunity to participate!


 

This content is provided by Coaltrans Conferences for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.

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