Wed, June 6, 2018 9:03 am

Time is flying by with the weather warming up and quarter three closing in quickly. M&A activity in the coal space has been robust so far this year, both domestically and abroad, but particularly so in Queensland over the past month with strong demand in the seaborne metallurgical market attracting a supply response, which has prompted a rise in our outlook for domestic coal production and exports. We encourage you to peruse the attached Monthly Update to get up to speed on the most recent developments in this dynamic coal space.

  • DTC’s Supply/Demand Outlook: Typically, June is a slow month for revising forecasts, since it is too early to determine whether summer will be hot or cool and multiple unknowns remain until the season plays out. Nonetheless, we made some modest changes to our production and thermal demand forecast based on the latest data available. Some were bearish, while some were bullish. Turn to page 9 to see our adjustments and commentary.
  • Global Thermal and Met Forecasts: On the thermal side, our focus during May turned to India, who has been a massive seaborne thermal importer so far this year; however, we are also closely watching the dollar vs local currency rates, the North Korea/China relationship’s impact on supply, an incipient trade war, continued grumblings in South Africa and a resilient global economy. For more info on our thermal forecast skip over to page 82. There were multiple significant events on the met side last month and with so many pieces to the puzzle, we divided drivers into bullish and bearish categories, with the bullish taking a slight lead in the short term. Page 99 is where to find our line up and the increases we made to our forecasts.
  • Capacity Prices Rise in PJM: Generators who cleared the 2021/2022 planning year capacity auction, which includes 500 MW more coal resources than last year’s auction, will be paid $140/MW∙day or more depending on their location, an 83% improvement YoY.  For those who cannot wait until 2021 to see higher prices, the DOE may have something up its sleeve.  Coal fired generation news is on page 24.
  • DTC Issues Q1 EIA Revision Estimates: After some back and forth with MSHA and a few producers, we are finally happy with the figures we have scratched out for Q1 revisions. We are anticipating total US production will be revised downward by 3.12 mm tons. More in-depth information and a regional breakout are found on page 13.
  • India Faces Ongoing Supply Issues: India’s coal production faced several hurdles in May. During an ongoing attempt to reduce India’s reliance on coal imports and prop up domestic coal companies, Coal India has been pushed to meet a growing demand for thermal coal but has missed productions targets, forcing other companies to ramp up output. During May, several utilities faced critical stockpile levels as capacity utilizations pushed 80% and up to 90% in some cases. According to Coal India, the situation was a result of approx. 8,000 MW of imported coal generation capacity being shuttered in favor of more-profitable, domestically-supplied plants. Global Steam coverage begins on page 74.
  • Something Old, Something New in the Bowen Basin: May was a busy month in Australia’s most important coking coal basin. Sojitz Corporation announced its intent to acquire and restart the venerable Gregory Crinum mine. Separately, South32 Limited (ASX: S32) revealed its intent to acquire a 50% interest in and become the operator of the Eagle Downs metallurgical coal mine whose development has been stalled since 2015. Detailed coverage of these transactions begins on page 85.
  • WLB Secures Financing Lifeline: WLB announced it secured $110 mm from a majority of its existing creditors to simplify WLB’s capital structure and provide more time to develop a comprehensive restructuring plan. In other equity-related news, some domestic producers experienced railing issues that impacted sales volumes in Q1, but there is an expectation that rail service will improve in Q2 amid strengthening seaborne demand.  Check out page 109 to see equity-related news and earnings coverage from companies to include CCR, CEIX, CNTE, HCC, FELP, HNRG, METC and WLB,
  • Coal Industry Conferences Take Breather: The coal conference circuit is typically light during the summer break, though the EIA’s Energy Conference and Coaltrans Poland just wrapped up. In early August, DTC’s Andy Blumenfeld and Tracy Green will both head to Santa Fe, NM to attend the ACC’s Coal Market Strategies Conference. A complete list of industry conferences and events appears on page 149.