New Orleans coal export discount near historic highs

High-sulfur coal shipped out of New Orleans, Louisiana, is being priced at a steep discount to competing products despite gains in the market this year.

Prompt two-month shipments of 11,300 Btu/lb typical 3pc sulfur coal were assessed at a 28-month high of $56/metric tonne fob New Orleans this week. But that was well below lower-sulfur 6,000 kcal/kg coal shipped out of Colombia, South Africa and Australia.

The spread with Colombian coal, the closest non-US competitor to the New Orleans market, widened to $30/t this week. The last time the discount was greater was in September 2012.

Central Appalachian, South African and Australian coal had even greater premiums over the price for coal out of New Orleans. South African and Australian coal prices attained the highest premiums to 11,300 Btu/lb typical 3pc sulfur US coal since Argus began assessing the US market in July 2011.

Sulfur discounts typically climb as seaborne prices rise to levels that cause buyers to become more resistant to paying certain prices for higher-sulfur coal.

The spreads between high sulfur coal out of New Orleans, which typically comes from the Illinois basin, and other seaborne coals started to widen in the second half of last year as demand started to recover from the global economic collapse surrounding the Covid-19 pandemic. The discounts grew even deeper in December amid frigid temperatures in parts of Asia and China's informal ban on Australian coal imports.

Supply disruptions have also been a factor in the widening spread between US high sulfur coal and other markets, especially recently.

The price for prompt two-month shipments out of Colombia jumped by $14.25/t over the course of May, to $81.50/t fob Puerto Bolivar last week, as protests blocked coal producer Cerrejon's shipments to the port. The price climbed by another $4.50/t this week after former Cerrejon workers resumed protests following a brief break.

South African and Australian 6,000 kcal/kg coal prices have also jumped by $15/t and $32/t, respectively, since the end of April amid heightened demand and tight supplies in those countries.

While coal out of New Orleans has also faced some supply issues related to high water levels on the Mississippi river in May, supply has been relatively more available. And its price last week this week was just $3.25/t above where it had been at the end of April.

Over the last six months, the price for coal out of New Orleans has risen by $13.60/t, or 32pc, while Colombian coal has climbed by 61pc.

In the Asia-Pacific region, Australian 6,000 kcal/kg coal was assessed last week at $120/t fob Newcastle this week, nearly double its price six months earlier.

Exports out of New Orleans typically rise around the same time that the spread between high- and low-sulfur coals widens.

The relatively more subdued rise in US 11,300 Btu/lb coal has already attracted some buyers. Bituminous thermal coal exports out of New Orleans climbed to a 27-month high of 1.4mn short tons (1.28mn t) in March, according to the latest US Census Bureau data. And shipments for the entire first quarter were the highest since the first three months of 2019.

More recently, market participants have said interest in Illinois basin exports has been steady. In some cases, the coal is also drawing attention from buyers that typically seek Northern Appalachian coal exports, which has been heard to be offered at prices around $80/t fob Baltimore for high sulfur 6,900 kcal/kg coal. That would work out to a roughly $10/t premium to coal out of New Orleans when adjusted for the higher heat rate.

"The high demand for Illinois basin coal (exports) is only because of the price," one buyer recently said. "When we compare it to other international coal markets, the Illinois basin (export) price has been very stable."

By Courtney Schlisserman

New Orleans exports and discounts