Production cuts in the Illinois Basin have tightened supply through the end of 2016, but have not resulted in higher prices or increased term deals as utilities are mostly covered through the end of the year, sources said Friday.
Fall solicitations are expected from Louisville Gas & Electric/Kentucky Utilities and Duke Energy, among other fuel buyers, but other utilities such as TVA and Big Rivers Electric are not expected to send out RFPs this fall, one producer said.
"There is not a lot out there for tonnage," the producer said. "People are going through their inventories and are better positioned than they anticipated."
Producers have adjusted for the drop in demand, cutting production year-to-date by an estimated 20.9 million st, or 24%, according to S&P Global Platts Analytics.
The production cuts have left little supply available for the balance of the year, a second ILB producer said.
LG&E/KU will send out its fall solicitation September 20, said Mike Dotson, the Louisville, Kentucky-based combined utilities' fuel buyer. "We're not looking for anything in 2017. We are looking for 2018 and beyond," he said. "We will probably buy for 2017 off quarterly spot solicitations."
Another utility, We Energies, was heard to have released a solicitation last week seeking roughly 1 million st of bituminous coal for next year, sources said.
Most producers, along with many utility customers, will have open positions going into 2017 to gauge how much volume they are going to need, he said.
"It will be interesting to see how much discipline producers have going into next year," he said.
2017 should be a better year for producers, given a normal winter, and 2018 "should really take off," said the producer, noting an expected increase in demand.
INDIAN BUYERS SEEKING DISCOUNTS ON ILB COAL
Other opportunities for producers include export markets such as Europe and India, although European demand has been weak, both producers said.
Most notably, Indian buyers have been looking at Illinois Basin coal, bidding $45-$47/mt FOB vessel. Net back prices in the high $20s-low $30s would be "discounted quite a bit," the source said.
"We've seen quite a bit of interest in export markets, but the challenge is that prices are so low," the first producer said. "India wants to buy it below where the market should be. They want a severe discount on ILB coal." With few recent deals reported, prices have not moved much, sources said.
Platts assessed prompt-quarter (Q4) ILB 11,500 Btu/lb, 5 lbs sulfur, low chlorine coal at $32.50/st, and assessed Cal 2017 coal at $33.40/st. Both assessments were unchanged from the previous week.
