Higher seaborne thermal coal prices have opened the export window for Illinois Basin coal producers, but margins remain tight, sources said Friday.
Producers remain uncommitted to the export market as sending coal overseas could leave them with short supply in the longer term as the number of domestic requests for proposals has increased.
Utilities must weigh whether to lock in term deals sooner rather than wait, given the volatility of natural gas prices and the possibility that export markets might take coal out of US supply.
"Most of the sentiment is that you get it while you can," an IB producer said. "Everybody's looking for some positives."
S&P Global Platts assessed 15-60 day CIF ARA 6,000 kcal/kg NAR thermal coal at $91/mt Friday, giving Illinois Basin producers a slight margin at least in the short term, sources said Friday.
That delivered price would leave Platts netback prices at US Gulf Coast ports for 11,500 Btu/lb IB thermal coal at $65.07/st FOB Friday.
Given IB 11,500 Btu/lb thermal barge coal prices for Q1 2017 were heard at $39.75-$40.25/st, that would leave roughly $3 margins for IB producers.
"Most of these operations need barge prices to get over $40 on the river to be even close to making money," the producer said.
In its Q3 earnings report October 28, IB producer Alliance Natural Resources said it had contracted 3 million st to be exported into Europe from Q4 2016 through Q1 2017.
Exporters also were able to sign "decent-sized contracts" to move roughly 1.5 million st of IB coal out of New Orleans into Europe in 2017 at a $2-$4 margin, a US coal industry source said.
"The stuff is flying," the source said. "It's happening as we speak."
A second IB producer said has been reluctant to sell coal into the IB market due to the sulfur discount that increases as API 2 prices increase.
"We are not participating," the source said, noting he was "encouraged" by an increased number of coal RFPs in the domestic market. Producers are reluctant to book much of their production into spot export deals, which take away tonnage from the domestic market.
Increasing production also can be risky because the export markets could go away later, forcing cutbacks.
For utilities, the improving export market provides contracting challenges for 2017 given the volatility of natural gas prices, a Southeastern utility source said.
"It's not as easy as it used to be," the source said. "In years past, we could forecast with some level of certainty. Today, the constant fluctuations between gas prices and demand make it a lot tougher to manage."
Platts assessed IB 11,500 Btu/lb 5 lbs SO2/MMBtu barge coal for prompt quarter (Q1 2017) at $39.75/st, up 75 cents from last week, and assessed Cal 2017 price at $39.40/st, also up 75 cents.
