As exports have "ground to a halt" for most Illinois Basin producers and domestic markets remain uncertain, Foresight Energy is one of the "best-positioned" producers to sustain exports at current prices, investment bank FBR said Monday.
That analysis echoes the sentiment of the St. Louis-based company, which boosted its total sales guidance through the end of the year to 22 million tons from 20.5 million st, largely due to the strength of its exports.
"The company remains optimistic on the export market, as Foresight believes Chinese and Indian demand will drive prices," FBR said in a note.
The projection could hit roadblocks if Asian-delivered prices trend southward as some analysts believe they will in the second half of 2017 due to supply overhang and weak Chinese demand.
For most IB producers, however, the export window has already closed as current netbacks are unsustainable, a trader source said.
S&P Global Platts assessed CIF ARA 6,000 kcal/kg 90-day thermal coal price at $71.45/mt Monday, down 15 cents from Friday. It was the lowest assessed CIF ARA forward price for physical delivery since March 31, after which prices rose on the impact of Cyclone Debbie in Australia.
Netbacks into the barge on the Lower Ohio River, which had been in the high $30s/st and low $40s/st when exports were strong in Q4 2016, have dropped to the low $30s/st and into the high $20s/st, a trader source said.
"I think the guys that are going to sell into the barge - I don't think that they're going to sell that low," the trader said.
Exports remain attractive for Foresight despite the low price environment, as it weighs netbacks against the "opportunity cost of domestic prices," FBR said.
In a Form 10-Q filed with the US Securities and Exchange Commission Monday, Foresight said higher transportation costs totaling $11.9 million during the quarter were offset by $2.9 million of lower charges for shortfalls on minimum contractual throughput volume requirements. Foresight saw its coal sales netback stayed relatively flat during the quarter at $43.12/st despite the loss of key domestic contracts due to an increase in export sales, the company said.
Foresight and Murray Energy also have the advantage of being able to rail direct through the Convent Marine Terminal near New Orleans, the trader said.
Foresight, Murray and other longwall producers such as Alliance Resource Partners also have the incentive to export at lower prices as domestic markets have dried up, a second trader said.
"What's killing these producers is no term business," the trader said. "I don't know how you invest in a mine with no long-term contracts."
