Analysts say lower export prices a threat to Illinois Basin coal producers

first_imgAnalysts say lower export prices a threat to Illinois Basin coal producers FacebookTwitterLinkedInEmailPrint分享S&P Global Market Intelligence ($):A combination of increased production, declining domestic demand and lower seaborne pricing is creating conditions in the Illinois Basin that might force mine closures or consolidation. Two analysts said the basin is already oversupplied, while others are hesitant to use that label yet.Several coal miners in the region announced increased output guidance or additional production during fourth-quarter 2018 earnings calls, which spurred some concern among observers who worry there will be more tonnage and fewer places for producers to sell it.Peabody President and CEO Glenn Kellow said on a Feb. 6 earnings call that the company will scale back some operations because pricing in the Illinois Basin is “not at a level that provides a clear return of that cost of capital.”John Hanou, president of Hanou Energy Consulting, agreed that the basin is oversupplied and there could be some consolidation as a result. “Coal miners are their own worst enemy,” Hanou said. “If they can expand production at a relatively low cost, that’s what they do.”Seaport Global Securities LLC analysts Mark Levin and Nathan Martin wrote in a March 20 report that while they think it is early to say the basin could be oversupplied in 2020, “we believe investors should at least be thinking about the possibility.” If lower export prices persist, that could make it “very challenging for Illinois Basin exports to maintain their lofty levels.”While the basin performed well in 2018 and looks poised to do pretty well this year, its success will depend largely on exports, Hanou said. Illinois Basin producers can compete when API2 prices are around $70 to $75, but once the price drops below $70, it becomes more difficult, even for the lower-cost miners. The price has recently fallen below $70. “Historically, if you look at the Illinois Basin and the exports, they’re highly cyclical,” Hanou said. “If the exports really drop this year and more likely next year, that’s going to create more supply into the domestic market.”More ($): As export prices fall, observers worry about coal oversupply in Illinois Basinlast_img read more

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