The optimism prevalent through the US Central Appalachian coal industry heading into the New Year has started to temper as an expected cold January has failed to materialize.
While thermometers dipped last weekend and will do the same during the next few days in some areas as a winter storm moves in, most of the US East has experienced above-average temperatures this month. Days below or even at seasonably normal temperatures have been sporadic, making coal burn inconsistent, utilities said.
Multiple market players told S&P Global Platts this week the pattern brings back bad memories of winter in early 2016, when a few cold days were followed by many days of mild temperatures.
One CAPP fuel buyer said many utilities already have started to rethink expectations of strong first-quarter 2017 coal consumption.
"Everybody's attitude seems to have changed really quickly," the buyer said. "Everybody thought we'd have a really strong winter and things were going great in the power industry for coal, but everybody's opinions have changed in the last week.
"The power market has reacted hard, and the gas market has reacted hard."
Natural gas prices have fallen on warm weather and decreased power demand, which has made CAPP coal less competitive. The Henry Hub front-month futures price reached a 2016-high $3.93/MMBtu on December 28 then dropped to as low as $3.103/MMBtu at the start of this week before settling Friday $3.419/MMBtu.
Utilities and producers said the CAPP spot market is quiet as prompt demand has fizzled. CAPP thermal pricing, however, has remained somewhat elevated, supported on short near-term supply and crossover tonnage still being siphoned into the metallurgical market.
Platts on Friday assessed CSX-quality (12,500 Btu/lb, 1.6 lbs SO2/MMBtu) coal at $56.50/st FOB rail for Q2 2017 delivery, down $3 from last week.
The fuel buyer said there should be a developing CAPP spot market toward the end of Q1 despite less-than-expected consumption at the start of 2017.
Sources said CAPP miners are looking increase met production early this year but are not planning on upping thermal output to play in an inconsistent and less-lucrative spot market. Continued limited thermal supply could help to deflect some of the price weakening due to demand drops.
"We're all cautious," one CAPP met and thermal producer said. "We all know with CAPP there's not going to be the utility demand like there used to be. Certainly you're not going to bring on production for a spot market because it's a very thin market."
