Expectations that weak seaborne coking coal prices in the last quarter of 2024 will carry over to 2025 in the face of low steel prices is pointing to further consolidation among US coking coal producers.
Consol Energy and Arch Resources set up the most significant merger of 2024 for the US market, with the merged company expected to generate $110mn-140mn of cost savings and "operational synergies" within 6-18 months of the close of the transaction. But continuing cost pressures will likely lead to closures of smaller high-cost mines, not uncommon in the past when US coking coal prices have reached a down cycle.
The fob Australia premium low volatile (PLV) coking coal price fell from this summer's high of $260/t in early July to average $203.46/t from the start of October, translating to prices that are below cost for many US producers. In recent years, price volatility and lack of liquidity, particularly in the Atlantic market, has meant many buyers have chosen to buy at index-linked prices, often with fob Australia indexes. The fob US east coast price has averaged $192.84/t for the current quarter, while the high volatile A fob Hampton Road price has averaged $186.47/t in the same period, prices cited by many US producers at near or even below cost after taking into consideration rail and port handling charges.
Lower cost longwall miners like Alpha Met Resources reported an average sale cost of $114.27/short ton ($125.96/t) in the third quarter for metallurgical coal, Arch Resources reported $93.81/st for the same and Warrior Met Coal indicated $120.21/st. But others such as Corsa are in clear loss-making territory at $169/st. After freight and handling charges, many of these producers will have fob equivalent costs closer to $170-190/t or even above $200/t for smaller continuous mining operations.
The poor margins has also meant US producers like Ramaco have cut back their guidance while lost output capacity has failed to lift prices.
Last month, many US producers have already looked to reduce shifts by extending time off for the holidays and hunting season. But this has still failed to stem supplies, particularly in the high volatile coal segment where traders and suppliers that had secured tonnes earlier this year or more recently via term contracts have been offering prices at steep discounts for on-water cargoes to Asia and port stocks in China.
US producers have been focusing their efforts on sales to Asia in the face of weak demand in Europe, leading to the absence of much incremental coking coal demand in the region since last year. In a time of high fob Australia prices, margins for US sales to Asia might have been attractive. But with low Australian prices and competition from Russia and Mongolia continuing to grow, the second half of 2024 has seen poor margins for US sales to Asia.
While Russian mining costs have risen, they are still well under the levels in the US. Industry sources peg average production cost for open-pit mining in the Kuzbass region at $18.37-35.75/t, excluding value-added tax (VAT), while underground mining stands at $24.83-60.58/t, excluding VAT, according to sources at Russian coal mining companies. Russian coal is also typically discounted to account for sanctions and difficulties with payments, and more recently the export duty on Russian coking coal was removed.
US president-elect Donald Trump's threat to impose import tariffs on all imports from China has drawn concern in the market about China imposing retaliatory tariffs on US coal. In a well-supplied market and the presence of strong competing producing countries at key import destinations, many US producers expect they will have to absorb any increase in tariff to secure sales to China.
At a recent industry conference in Prague, several participants indicated the fob Australia PLV index should be in the region of $220-225/t to be sustainable for the wider industry.
