Weather supply chain disruptions help U.S. spot coal prices

Despite a plethora of punitive U.S. coal mining legislation, the outlook for domestic mining may be good due to international coal supply disruptions.

RENO, NV - 

Citigroup forecast that the pattern of strong coal prices and weak corporate earnings will continue across the sector.

In an analysis published Tuesday, Citigroup mining analysts John H. Hill and Paul Cheng noted several key major disruptions to the global coal supply chain in recent weeks including:

• The worst snow storms in five decades paralyzing China's coal supply this week

• Heavy rains and flooding disrupting coal production and transportation in the Australian mining state of Queensland last week

• Flooding-related power outages that have paralyzed the South African mining industry for the past week

"Coal has been following a series of international supply disruptions, that potentially open further export opportunities for U.S. miners," Citigroup's analysis determined. "Supply shortfalls in Australia, S. Africa, and China are being rapidly transmitted to U.S. markets."

Hill and Cheng noted that U.S. spot coal prices "have decisively turned the corner, following a dismal period in early-mid/07 of higher year-on-year inventories, thin contracting, and intense political pressure." Powder River Basin coal is now $12.30/ton, while Central Appalachian coal has increased $15 per ton to $63.70/ton. Northern Appalachian coal has achieved parity and is around $63/ton spot.

Therefore, Citigroup suggested that coal is beginning to see improved metrics despite U.S. legislation that could hurt the domestic coal markets. "An enhanced Miner Act, Supplemental Mine Improvement and New Emergency Response (S-MINER) Act, and remove of Coal-to-Liquids from the Energy bill are disappointments," the analysts admitted.

Nevertheless, Citigroup declared, "Our sense is that within three years the industry will be significantly consolidated, around the time that clean coal technologies begin to harden and national energy shortages materialize. This should open a new chapter for coal."

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