Europe may continue to dominate US thermal coal exports in 2023 but demand for high-sulfur coal may wane.

 

Europe passed Asia as the primary destination for US steam coal exports in August for the first time since November 2018. And it held that top spot the following two months, the latest US Commerce Department data show. By the end of October, US steam coal exports to Europe on a year-to-date basis had climbed to a four-year high of 10.4mn short tons (9.45mn metric tonnes), while volumes to Asia dropped by more than 6mn st to 13mn st.

 

The shift in US thermal coal exports in 2022 came while supply disruptions in other countries bolstered delivered coal prices, making the continent a more attractive destination for coal sellers.

 

Europe likely continued to be the top destination for US thermal coal in November and December. That could result in US volumes to Europe for all of 2022 being just shy of shipments to Asia.

 

For 2023 "all things unchanged, I think there will be good flow of US exports to Europe," one market participant said. He estimated it will be a mix of shipments that were put under contract in 2022 and new deals.

 

But the export picture is not entirely rosy. Prices have fallen from the records set in the middle of 2022, which could deter some US producers.

 

Low water levels also slowed coal shipments from terminals in Amsterdam-Rotterdam-Antwerp (ARA) and a relatively mild autumn and start to winter limited coal consumption. Now, "there is ample supply of high-sulfur coal in Europe," a utility buyer said.

 

In October, US exports out of New Orleans — which typically are mid- to high-sulfur Illinois basin coal — to Europe fell from year-earlier levels for the only the second time in 2022 and were the lowest since December 2021. Still, January-October shipments from the port district to Europe were at a four-year high of 5.7mn st.

 

Thermal coal exports out of Baltimore, Maryland, to Europe for the first 10 months of 2022 quadrupled to 2.22mn st, which is the most since at least 2012, as buyers in India reduced Northern Appalachian coal purchases.

 

Inventories of other types of coal in Europe also are elevated following buyers' moves to ramp up purchases of coal from other origins – including US low-sulfur coal - ahead of both the embargo on Russian and supply and the winter. On 18 December, inventories at the ARA hub's main ports totaled 6.2mn t, which was about 900,000t above the 2017-2021 average for mid-December.

 

"First quarter demand is going to be pretty gruesome because the reality is a lot of people have got a lot of stock at the moment," one market participant said. He still expects exports to Europe for 2023 as a whole to be flat with 2022 but noted demand likely will depend on how cold the winter is.

 

At the same time, US supply of low-sulfur bituminous coal is somewhat limited and will depend on pricing. Producers this year extended the life of some Central Appalachian steam coal mines and washed high-volatile metallurgical coal to become thermal coal, as seaborne prices reached record highs. As European-delivered coal prices have fallen closer to $200/t cif ARA and lower, fewer offers of low-sulfur US coal are being made.

 

Producers remain committed to winding down more Central Appalachian thermal coal operations as soon as 2023. That could change if prices rise again, but US thermal coal exports likely to Europe next year may at best be flat with 2022.