Fri, August 3, 2018 12:00 pm
After spending a week together as a team in mid-July, we are relaxed, refreshed and more excited than ever about what we do. The rest of the month had us dancing like popcorn in a hot pan. We are tracking the export story, running down M&A rumors, listening to investor calls for consumers, producers and transporters, and as if that was not enough we continue work on product improvement and client contact. Aside from acknowledging that DTC has a very special mix of people who work for the Company, our other big takeaway from our time together is how fortunate we are to have such a loyal client base. Please enjoy our August Monthly Update and keep sharing your comments and ideas to help us server you better. ~Team DTC
- DTC Supply & Demand Forecast: Aside from our 2018 year-end inventory estimate, this month we made only minor adjustments to a handful of supply and demand inputs. We expect coal inventories to finish the year at 105 mm tons due to higher exports, lower production and comments made by some publicly traded producers during the Q2 earnings season so far. Exports continue to be the hot topic and have helped buoy prices while also absorbing tons that otherwise would have gone to utility inventories. In terms of days of supply, this is close to 60 days and, if true, will be the first time utility inventories have seen this mark in terms of days since 2008.
- Growing More Bullish on Global Coking Coal: During the last few weeks of July we have grown more bullish on coking coal based on the sheer volumes of steel production globally and the very real possibility of a marked increase in Chinese coking coal demand. We believe the high levels of scrap use in China are not sustainable given rising scrap prices and the fact that significant domestically-generated scrap in China is still a few years out. In addition, the Trump Administration recently announced it is planning on raising tariffs from 10% to 25% on $200 billion of Chinese goods and the easiest Chinese response to a weakening economic outlook (and one they have made in the past) will be infrastructure spending. For these reasons, we are raising our forecasts for Q3 and Q4 2018 to $185/MT and $195/MT, respectively.
- ERCOT Sets New Demand Record: The Texas electric market logged a new record for peak demand this month, topping 73 GW for the first time ever on July 19th. Despite a large chunk of coal retirements earlier this year, resources proved adequate to meet demand and scarcity pricing was not triggered.
- The Rails Report: The last two weeks of July saw all the public Class 1 rails issue Q2 earnings. Our big takeaway was perception is everything.
- India a Central Theme for Seaborne Thermal: DTC is closely watching India’s humming economic growth, heavy reliance on imports, weak rupee currency and decisions on its petcoke ban, and for these reasons we expect their buying appetite to cool from the seaborne thermal market. Partially offsetting that in the near term are the record summer temperatures in major Asian thermal coal importing countries such as South Korea and Japan.
- 1H 2018 Crude Steel Production: Producers around the globe, most notably China, busily poured steel during the first half of the year, resulting in almost a 5% increase in output YTD versus 2017!
- Exports, Exports, Exports: The Q2 earnings theme this year was domestic producers capitalizing on strong international pricing and demand, with several producers sending more tonnage to the export markets, amid improving logistical constraints. Check out earnings results from ARLP, ARCH, BTU, CCR/CEIX, CLD, FELP, HCC and TECK, as well other equity-related items.
- DTC at Conferences: This month Geoff Mattson and Dianna Ridgway will be hitting the links with some of coal’s finest golfers at the NYCTA’s Foxwoods outing. Then during August 6 – 8, Tracy Green and Andy Blumenfeld are heading to the sunny southwest to attend the ACC’s Coal Market Strategies conference, where Tracy is participating in Tomorrow’s Leadership Council and Andy will be giving a presentation titled “Coal Markets Outlook and Natural Gas Dynamics”. If you see us out and about, please say hello! A list of upcoming industry conferences and events starts on page 155.