At first glance, recent facts and figures about U.S. seaborne coal exports in 2017 seem to suggest a cause for celebration among dry-bulk shippers. After all, America’s coal exports are up 57% in total volume and 61% tonne-miles for the first two quarters of 2017, compared with the same period in 2016.
Europe continues to be the largest importer of U.S. coal, accounting for 41% of all U.S. seaborne coal exports in the first half of 2017, and registering a 43% increase over its intake in 2016. During that same time, East Asian imports of U.S. coal surged 172%, while tonne-miles to that region spiked some 112%.
Impressive as those numbers may be, popping the champagne might be premature. The uptick in percentages doesn’t tell the whole story. This blog will look at some of the other factors in play.
The bigger picture
When comparing the numbers for 2017 to the numbers in 2016, it’s important to keep in mind that the amount of coal produced in the U.S. in 2016 was the lowest since 1978. So, the increase this year, while a welcome boost for the industry, isn’t exactly off the charts.
While the increase in the amount of U.S. coal exported is a positive indicator, the price of coal in the global market also has an impact on the export outlook. A report in Reuters summed up the current state of the price of coal, “The Asian benchmark price for thermal coal, the weekly index at the Australian port of Newcastle, ended at $92.28 a tonne on July 28, largely steady from the $94.44 at the end of 2016, but almost double the $50.63 at the end of 2015. At the current price, U.S. coal can compete in Asia, especially on the U.S. east or Gulf coast to India route, but also on the California to China or North East Asia route.”
Future U.S. coal exports depend to a large extent on whether prices in Asia remain substantial enough to make the long sea voyage from ports in the U.S. profitable.
Is the growth in U.S. coal exports likely to continue?
Several of the factors involved in the increased global demand for U.S. coal appear unlikely to continue at the same pace, or at all. These include:
- China’s efforts to restrict its domestic coal output by closing its inefficient mines
- China’s lower hydropower output, boosting the demand for coal
- The disruption of coal exports from Australia in the aftermath of a major cyclone in March
- France’s nuclear outages this year, which led to a greater reliance on coal-fired power
Add to all this the fact that U.S. coal production and transportation costs are typically higher than those of other producers—Australia and Indonesia, for instance—and it’s probably safe to say that the demand for U.S. coal will probably not continue its impressive 2017 surge.
Though the dry-bulk industry has been—and is—subject to political and economic forces beyond its control, there are some signs that the pattern of recovery that began this year could continue. Among those signs is the ongoing effort to reduce—by scrapping old vessels—the supply-and-demand imbalance that has plagued the sector. The increased demand for grain in emerging economies also bodes well for the dry-bulk shippers.
Peter Sand, Chief Shipping Analyst at BIMCO (Baltic and International Maritime Council), prefers to see the glass as half full. Taking into account recent positive trends, as well as marketplace realities, he concludes, “If U.S. coal exports remain high throughout 2017 it will have a solid effect on the global seaborne coal trade and support the overall improvement in the dry bulk shipping industry.”