Coal markets traded mostly flat to lower in June as weather remained mild and demand was slack, according to an SNL Energy report.
“While utility inventories are low by historical standards, generators are awaiting stronger demand signals before building stockpiles up further,” the report said. “The NYMEX CAPP prompt-month benchmark nudged up 12 cents/ton while NYMEX PRB lost $1.10/ton, or 8 percent. Northern Appalachian markers lost 25 cents/ton to 35 cents/ton, while remaining physical markers traded flat for the month.”
Natural gas injections to storage picked up during June, but too slowly to fill storage to normal levels by summer’s end, the report indicated.
“To reach normal storage levels, incremental supply of 6 Bcf/d is needed, leading many analysts to expect a deficit to end the injection season,” the report stated. “The ongoing need for additional storage injections combined with expected seasonal demand kept Henry Hub natural gas spot prices above $4.50/MMBtu during June.” Even with injections beginning to pick up over the last two weeks, SNL Energy expects Henry Hub to remain above $4.25/MMBtu for the summer and may remain at current levels if power generation demand is sufficient, according to the report.
“Many shale gas hubs, it should be noted, are pricing from $4/MMBtu to $4.25/MMBtu,” it said.
Coal is likely to remain competitive for power generation for the balance of 2014 in most markets, the report went on to say.
“However, coal production results so far suggest that utility demand has not picked up as much as expected,” the report said. “While a surge in seasonal demand for electricity and associated coal demand appears likely for the third quarter, utility efforts to restore inventories may not begin in earnest until the fourth quarter.”
Near-term pricing for spot transactions remains robust, compared to recent history, an SNL chart showed. The chart showed SNL Energy’s current price forecast for the PRB 8800 and 8400 markers.
“Production levels through mid-June averaged 18.9 million tons per week, consistent with estimates over the past quarter,” the report stated. “Production levels on a 52-week moving average basis continue to outpace last year, indicating sustainable production levels, with some upside due to low inventories. Given little additional movement in June, SNL Energy expects that utility buying will increase when warmer weather becomes evident.”
Keep reading the full report and analysis online at http://www.snl.com/InteractiveX/Article.aspx?cdid=A-28521365-12590