CHICAGO U.S. coal exports, including metallurgical coal, have made steady inroads into the Asian market since 2007, with metallurgical coal accounting for two-thirds of that growth in the past five years.
But a U.S. commodities analyst suggests that growth will fade over the course of the year.
U.S. coal exports are "likely to fall meaningfully" in the second half of the year, Cowan & Co. equities analyst Daniel W. Scott said during the IHS McCloskey Coal USA conference June 19-21 in New York.
In a June 24 report summarizing the conference, Scott said this expectation was the largest takeaway from the event.
"Speakers from Walter Energy (Inc.) to Peabody (Energy Inc.) ... noted that the global seaborne coking coal market is oversupplied, even with current benchmark at $172 (per tonne)," he said.
The U.S. Energy Information Administration (EIA) projects that U.S. coal exports this year will dip slightly from their 2012 highs, but will still surpass 100 million tonnes for the third straight year, reaching 110 million tonnes. Annual exports were 125.7 million tonnes in 2012 and 107.3 million tonnes in 2011.
Increased Asian demand contributed to record U.S. coal exports in March 2013. Exports for the month totaled 13.6 million tonnes, beating the previous peak in June 2012 by nearly 0.9 million tonnes. Met coal accounted for 54 percent of March 2013 coal exports.
Asia has taken an increasingly large share of U.S. coal exports in recent years, at 25 percent in 2012 vs. 2 percent in 2007.
Almost all U.S. coal exported to Asia went to the worlds top four coal importers: China, Japan, India and South Korea, the EIA has found.
Both structural and cyclical forces have driven the growth of U.S. coal exports to Asia in the past five years. Companies in key parts of the U.S. coal supply chainboth mine and railroad operatorshave boosted sales to Asia due to rising demand and strong export prices.
One-off events like supply disruptions in other coal-exporting nations have also provided a temporary boost to U.S. exports. American exports of metallurgical coal to China during the first quarter of 2013, for example, were more than double 2012 levels, the EIA stated, largely because China had contract disputes with Mongolian coking coal producers.
Coal exports to China and South Korea have grown particularly fast, although exports to India and Japan have also grown.
Nearly all U.S. metallurgical coal exports to Asia in 2012 were shipped from ports on the East Coast and the Gulf of Mexico.
Despite recent growth, U.S. metallurgical coal exports remain a relatively small source of supply to Asia because of strong competition from suppliers in Australia, Canada and Russia. In the past two years, Mongolia has become a major supplier of coking coal to China, adding to competition in the market.
U.S. coal exports will cool and prices will fall due to excess supply, Scott said.
"A likely met coal benchmark drop below $150 (per tonne) f.o.b., with potential for a slow recovery, likely puts additional large swaths of production out of the money, especially for lower-quality material," he said. "We believe exports are likely to fade. Met coal producers need to batten down the hatches as prices languish at unhealthy levels."