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Illinois Basin optimism tempered by oversupply, weak demand

http://www.chemnet.com   Jul 17,2017 Platts
Illinois Basin coal producers who entered the summer with sunny optimism are facing the prospect of supply overhang and weak demand.

The domestic market has not provided much support as several coal solicitations have been disappointing.

Producers who had expected more buying are experiencing a "pretty serious capacity overhang," an IB trader said.

"The hope and expectation was for the domestic market to take more tons in 2017," he said. "That obviously isn't panning out."

The markets have quieted as natural gas prices have settled around $3/MMBtu, and burn projections have fallen short on milder-than-expected weather, an IB producer said.

"It has slowed down a lot since the drop in gas prices," the IB producer said.

Some of the biggest IB buyers -- Tennessee Valley Authority and Big Rivers Electric -- are still evaluating offers and burn projections, the producer said.

Louisville Gas & Electric/Kentucky Utilities is expected to buy some coal from their spring RFP, and offers for an EKPC solicitations are due next week. Duke Energy's solicitation for the back half of 2017, originally estimated at 2 million st, fell about 1 million st short due to lower than projected burn.


Export markets, which briefly surged on higher European-delivered prices after five months of inactivity, have faced other obstacles, including higher freights and increased sulfur penalties. Extra delivered costs have lowered netbacks at US Gulf Coast ports, a USGC exporter said.

"The [CIF ARA] price may look good, but once you take off for freight and the sulfur discount it doesn't look so good," a USGC exporter said.

On Friday, Platts' CIF ARA marker, for 6,000 kcal/kg NAR thermal coal delivered into Northern Europe, was assessed at $82.65/mt, down from $85.85/mt on Monday, which was near levels not seen since late January.

Platts assessed Panamax-sized freight from Mobile, Alabama, to Rotterdam at $14/mt Friday, up $1.75 on the week. Sulfur penalties for 3% sulfur IB coal were heard to be ranging from $12-$14/mt, as the Platts calculated netback at USGC ports dropped Friday to $52.57/st from $58.89/st a week ago.

Bids were being heard into the vessel at USGC ports in the high $40s-low $50s/mt, although seller expectations were still in the high $50s/mt FOB, sources said.

"It wouldn't surprise me someone would bid in the high 40s-low 50s for IB coal, but the real market is closer to $56/mt for 11500, 2.75% sulfur," a trader source said.

The brief export surge that accompanied higher prices included a Panamax cargo/month deal from September-December in the $34-$35/st FOB mine range, was believed to have been bought as a physical hedge as financial prices were on the upswing.

Other trading activity included a European trader booking 10-12 cargoes in the high $40s-low $50s/mt at the USGC port in the last month and an IB producer offering cargoes at $58/mt FOB vessel, the exporter said.

"I think it was a little blip," said the trader. "I just don't see any demand with the Europeans on vacation in August and Indians not buying a lot because of rainy season. They will stay out of the market until October."
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