US metallurgical coal production is plateauing, despite higher than average prices, US investment bank Seaport Global said Wednesday.
"We simply haven't seen any growth the last three quarters," senior analyst Mark Levin said in a note. US met coal output was just over 80 million st in 2018, Seaport estimated.
"US met coal production has now declined for three consecutive quarters. If there was any growth, it was in the low-vol sub-segment, where production from the top 20 mines rose 13% year-on-year in Q4."
Seaport said the US may see total met coal output in 2019 unchanged on 2018, despite potential to grow total met coal production by 2 million-4 million st, dependent on factors.
His team analyzed US government mine data, which showed high-vol mines Leer, operated by Arch Coal; American Eagle, operated by Blackhawk Mining; and Coronado's Lower War Eagle, had output fall in the fourth quarter.
Key growth in Q4 from some producers, such as three larger mines in Alabama -- Warrior Met Coal's No. 7 and No. 4 Mines, and Shoal Creek, which has been acquired by Peabody Energy -- helped compensate output falling in some US high-vol and low-vol mines in Central Appalachia.
"It seems like every year there is at least one or two older, long in the tooth mines that really struggle geologically," Seaport analysts said.
"Frankly, we would be surprised if that didn't happen again this year. From a bigger picture perspective, publicly traded coal management teams seem highly disinterested in committing significant capital to new mine development."
Seaport said volatile met coal prices -- with benchmark prices above $175/mt since August 2018 but below $100/mt from March 2015 to July 2016 -- limited long-term growth capital.
"The industry continues to have a hard time attracting meaningful capital," Seaport said.
Much of the US sector is made up of smaller mines competing for rail and port service, with many companies exporting met and thermal coals, compared with larger-scale Queensland mines designed to operate at high rates at lower FOB costs. Only four US met coal mines have annual production of over 2 million mt, while the top 10 met coal mines in Australia have annual production of 6 million-13 million mt and many are in the top quartile for operating margin globally in 2017, based on published analysis citing consultancy Wood Mackenzie.
