Exports unlikely to boost Illinois basin coal output

Recent interest in exporting Illinois basin coal is unlikely to change producers' plans to limit production this year as the domestic market remains oversupplied.

International interest in Illinois basin coal has climbed in recent weeks amid tightening global supplies. And seaborne prices have risen to levels at which basin producers can make a profit.

Prompt two-month deliveries of 6,000 kcal/kg coal to Europe, which is still the primary destination for Illinois basin coal, reached a 22-month high of $71.29/metric tonne cif Amsterdam-Rotterdam-Antwerp yesterday.

Other markets also are opening to Illinois basin coal. Near-term deliveries of 5,500 kcal/kg coal to the east coast of India started the year at $73.43/t cfr. It had been as low as $41.81/t last year.

Thermal coal exports out of New Orleans, Louisiana, which are primarily Illinois basin coal, totaled 571,179 short tons (518,165t) in November, down from 887,830st a year earlier, but still the highest level of 2020, according to the most recent US Census data. November coal exports out of the port were 76pc higher than October shipments.

Recent feedback from sellers suggests volumes will be steady with November or possibly higher at least through the first few months of this year.

US coal with 11,300 Btu/lb typical 3pc sulfur coal climbed to $49.50/t fob New Orleans last week and is up by 17pc since 3 December. Offers for Illinois basin coal out of the port have climbed into the mid-$50s/t.

While US producers welcome the business from international markets, most are unlikely to deviate from their plans to only produce enough coal to match booked domestic sales.

"We are going to be able to sell those incremental tons on the export side," an Illinois basin producer said. "But we still have a slight oversupply in the domestic market."

The US coal market was oversupplied through 2020, resulting in significant production cuts in the Illinois basin. Mines in the basin produced approximately 72mn st last year, down from nearly 100mn st in 2019, according to US Energy Information Administration (EIA) estimates.

Domestic demand for Illinois basin coal last year was approximately 70mn st and could fall below 60mn st this year, the producer said.

It is unlikely exports will offset the drop in domestic demand this year. EIA this week projected total thermal coal exports will climb to 31.7mn st in 2021 from an estimated 24.4mn st in 2020. Shipments out of New Orleans accounted for 29pc of US steam coal exports from 2015-19 but were just 15pc of volumes for the first 11 months of 2020, Census data show.

If domestic or international demand is better than projected, Illinois basin producers could add days to a crew's shift instead of bringing in an entire new crew of miners.

A second producer in the region said there needs to be signs of sustained demand internationally before producers ramp up production and risk oversupplying the market.

"We have been very responsible not to inflate our inventories," a trader for that producer said.

By Jim Foster