Domestic, seaborne demand bolster Consol sales forecast
Consol Energy anticipates selling more coal this year than it previously expected, as seaborne and domestic demand continue to support US producers.
The Appalachian producer raised its 2018 outlook to 26.9mn-27.5mn short tons (24.4mn-24.9mn metric tonnes) from a previous forecast of 26.4mn-27.4mn st. This was the third time the company has raised its sales projections for the year.
The improved outlook is supported by record third quarter production at the company’s Pennsylvania mining complex, Consol said. The development produced 6.4mn st of coal July-September, up from 6.1mn st in the third quarter of 2017 as geologic conditions at the Enlow Fork mine improved. That rise offset the effect of three longwall moves at Consol’s properties.
Sales slipped slightly in the third quarter, to 6.2mn st from 6.3mn st, but the average realized price rose to $47.21/st from $44.16/st thanks to higher export prices and demand.
Rising prompt month and 2019 API 2 prices for coal delivered to Europe suggest exports could continue to be supportive to US markets, Consol said. At the same time, domestic demand is poised to increase as utilities look to restock supplies.
“Low domestic coal inventories are bringing customers to the market early” and prices on new agreements are coming in at higher levels than were put in previous contracts, chief executive Jimmy Brock said. “Inventories at several of our key customers’ Northern Appalachian rail-served power plants continue to average around 20 days of burn heading in to winter compared to the typical 30-40 days.”
At the end of August, US utility inventories were down by an estimated 26pc compared with last year, at 104mn st, Consol said citing US Energy Information Administration data.
Meanwhile, US coal supplies remain exceptionally tight due in part to attractive export markets. Prompt month API 2 coal prices rose by roughly 3pc during the third quarter, topping $100/metric tonne, amid hot weather in Europe, increased natural prices and reduced renewable generation. Prices for 2019 portions of the forward curve increased even more, by 10pc, “reflecting the industry’s optimism for sustainable coal fundamentals,” Consol said.
As competitors focus on exports, Consol has layered in additional domestic sales for coming months and years, Brock said.
Consol said it has been able to secure multiple fixed-price, multi-year contracts, some running through 2021. It currently has 90pc of its expected production for next year under contract when based on an annual run-rate of 27mn st/yr, and 44pc of projected 2020 shipments. At the end of the second quarter, it had commitments to ship 74pc of its production for 2019 and 32pc committed for 2020.
The company is in negotiations over its remaining resources and expects to have 100pc of next year’s production contracted before the end of 2018, executives said.
Consol added 1.2mn st to its 2019 export commitments in the third quarter, bringing volumes under contract for international customers up to 8.2mn st, or 30pc of Consol’s projected sales and production. The company narrowed the range of expectations for volumes going through its Consol Marine Terminal in Baltimore this year to 12mn-14mn st from a previous 12mn-15mn st. The terminal handled 14.3mn st of throughput volumes in 2017.
Shipments through the terminal fell to 2.7mn st last quarter from 3.5mn st in the same period of 2017. Consol executives tied the decline to production disruptions that occurred during the company’s three longwall moves. Contracts with US-based customers required Consol to give them preference, lowering the available supply for exports.
The terminal’s revenue rose to $16.1mn from $15.1mn in the year-ago period. The producer attributed the increase in revenue to a take-or-pay contract it signed earlier this year that runs through 2020.
Demand from India remains strong, but it has softened a bit since the second quarter because of declines in petroleum coke pricing, Consol said. India has purchased the majority of Consol’s exports so far this year.
Moving forward, the company said it plans to expand its presence in the metallurgical coal market. Consol submitted its permit application for the Itmann mine in West Virginia earlier this month after exploration drilling tests showed reserves to be in line or better than what the company had been expecting, Brock said. He said production could begin by the end of 2019.
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- On November 1, 2018