High stockpiles are weighing down coal prices
Analyst suggests coal prices will be depressed through 2010
Tom Stundza -- Purchasing, 6/24/2009 12:45:46 PM
Coal inventories at generating plants in June are estimated at 194 million tons, which would be close to an all-time high, says analyst David Lipschitz at Calyon Securities (U.S.A.) Inc. So, with power demand down and no rebound expected this year, a drawdown of coal inventories will be slower than usual. "Domestic inventories should weigh on the steam coal market prices through 2010" and keep any rebound under $70/ton, he writes in a note to clients.
Central Appalachian spot coal prices averaged $105 in 2008. Currently, they are averaging $48/ton, which is down 57.5% year over year (from $113 last June) because demand from power plants has decreased and because competitive fuel natural gas has deflated. Atop that, electricity generation through mid-June is 1.7 million gigawatt hours, down 4.7% versus the same period in 2008.
Available audited market data through April shows coal as a percentage of utility generation at 44.1% (vs. the usual 48-50%). "Coal's portion of generation was 44.1% in April, down from 44.8% in the prior month and 48.4% year over year," Lipschitz says in his note.
Analyst John Bridges at J.P. Morgan Securities notes that "coal prices remain depressed (so) the U.S. coal market is struggling to adjust to an approximate 10% pullback in utility demand." He points out that major coal-mining companies have announced cuts to production of up to 75 million tons of annual capacity--"and it's likely that as the year progresses and contract sales end, smaller miners will reduce production."
Overall U.S. coal production in May, according to monthly data from the U.S. Energy Information Administration, was down 12.6% overall, 8.2% in the western U.S., and 18.1% in the East and Mid-Atlantic. On a weekly basis, year-to-date total coal production through early June 6th is down 7.5% versus the same time period last year. Coal production is down 9% in the East and 6.4% in the West. "Though production is declining, it still isn't enough to match the fall in coal demand," says the analyst.
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