The start to 2016 has not brought any reported contract coal deals out of the US Illinois Basin, as utilities are largely out of the market and producers are reeling from higher costs, sources said Monday.
Mild winter weather and low natural gas prices have created a period of uncertainty about existing and future contracts, sources said.
"Everybody's in the same boat," a Kentucky fuel buyer said. "Both buyers and suppliers are wondering how this is going to play."
Producers have not seen prices increase despite dropping production nearly 27% in the fourth quarter. In 2016, production again is down 27% compared with the same period last year, according to data released Friday by Bentek Energy, a unit of Platts.
Alliance Resource Partners announced last week it was cutting its 2016 production forecast by about 15% and considering possible mergers and/or acquisitions of low-cost mines to ride out the downturn.
More rationalization, a hot summer and a rise in the natural gas markets above $3/MMBtu will be needed for prices eventually to recover, a coal broker said.
The process could take nine to 12 months, or longer, he said, noting Murray Energy CEO Bob Murray's forecast last week that Illinois Basin 11,500 Btu/lb FOB barge coal would remain in the mid-$30s/st through 2017.
Those prices for coal produced at longwall mines, which are the cheapest mines in the basin on a delivered basis, are not enough to cover mining costs, debt payments and transportation costs, the broker said.
He estimated mine costs at $20/st, debt service at $10/st and rail costs at $8-$10/st.
Platts assessed prompt-quarter Illinois Basin 11,800 Btu/lb, 5 lbs SO2/MMBtu FOB barge coal at $35/st Monday, unchanged from last week. Prompt-quarter Illinois Basin 11,500 Btu/lb, 5 lbs SO2/MMBtu FOB barge coal was assessed at $33.50/st, also unchanged from last week.
