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US coal output to continue to fall in 2016

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World Coal,

US coal production will fall by almost 100 million short t this year, according to the forecasts from the US Energy Information Administration (EIA) with Appalachian output the worst hit in percentage terms, falling 13%.

Interior Region production – which includes the Illinois Basin – will show its first annual decline since 2009, falling 8%. Meanwhile, Western Region production, including the Powder River Basin (PRB), will fall below 500 million short t for the first time since 1998 to finish the year down 9%.

Looking ahead to 2016, the EIA expects production to continue to fall – but at a slower rate, dropping only 29 million short t.

The regional make-up of US coal production has also undergone rapid change over the past few years with the Interior Region accounting for 21% in 2016 compared to just 16% in 2011. “This increase reflects the region’s growing competitive advantages compared with the other coal-producing regions,” the EIA said in its latest Short-Term Energy Outlook (STEO). “These factors include the higher heat content of the coal, closer proximity to major markets than coal produced in the Western region and lower mining costs than Appalachian-produced coal.”

Adding to supply, coal stockpiles reached a high of 162 million short t in September – a 4% increase on August and significantly higher than the 147 million t ten year average. Meanwhile, exports are falling as lower mining costs, cheaper transportation costs and favourable exchange rates will continue to provide an advantage to other coal-exporting countries.

US exports for the first nine months of 2015 were down 22% compared to the same period in 2014 and are expecting to fall by a further 6 million t in 2016.

Feeling the pinch, Cloud Peak Energy recently announced revised transportation agreements with BNSF and Westshore Terminals, suspending its take-or-pay agreements that were signed on the expectation of growing US coal exports.

On the consumption side, US demand is forecast to drop 10% in 2015 as a result of a 10% drop in electric power sector consumption. Lower natural gas prices were the primary driver of these falls, while retirements of coal-fired power plants on the back of lower gas prices and the implementation of the Mercury and Air Toxics Standards (MATS) also played a part but the full impact will not be felt until 2016, according to the EIA.

Coal plant retirements in 2016 will be mitigated slightly by higher natural gas prices but coal consumption is still expected to fall by 1% next year.

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