A Summary behind the Price Sheet Methodology
Market prices are an independent assessment based on reported and non-reported transactions, bid-asked quotes and market intelligence gathered daily by Daniel Vaughn and the Coaldesk team.
The highest confidence level for assessing coal prices is through use of reported trades in the over-the-counter (OTC) market, followed by verifiable of non-reported trades. Not all trades are reported in the market due to various reasons: the counterparties involved may request the trade not be reported, the coal product has limited market liquidity, or the credit grade of one of the counterparties skews the transaction price due to credit risk.
All these factors are taken into consideration when assessing market prices. Coaldesk works diligently to validate price data on non-reported trades by confidential price discovery with the parties involved and, by Coaldesk when directly involved in the transaction.
While coal trading activity varies on an annual, monthly and daily basis; there is no denying that domestic U.S. coal trading has experienced a significant drop in activity since 2014. This lower trading volume and decreased activity makes price discovery even more challenging, a challenge that the Coaldesk team continues to meet in assessing accurate price data.
Bid-Ask quotes are used to “frame” the market price for the more actively traded products when no actual trade has transpired. As an example, if a product is being quoted in the market and there are three buyers and one seller, Coaldesk’s assessed mark-to-market price would not necessary be the midpoint between the bid ask, but most likely estimated closer to the asking price. Similarly, if a coal product is bid or offered in the market but the market lacks a willing counterparty to take the other side (assuming transactional market conditions), the assessed value will be reflective in the price.
As a point of reference, during the early years of OTC trading, CAPP barge coal dominated the OTC coal market, followed by CSX rail physical coal and PRB physical coal. But as market conditions changed (a significant drop in CAPP barge coal by domestic utilities), the market has shifted its primary focus to the CSX and PRB coal products (both financial and physical coal).
The second tier of OTC coal activity centers around both the ILB and NAPP coal regions. Coals from these regions shipped via barge and rail are also suited to transact in the OTC market, albeit at a less frequent pace.
Other less actively traded products are the higher sulfur Eastern and Midwest bituminous coals, followed by the western Bituminous coals. Although these coals have limited exposure to the OTC arena, the need for price discovery remains critical to market participants. Thus, through market monitoring and a large client network, Daniel Vaughn and the Coaldesk team are able to place a representative value on these coals.
Monthly trading activity: November 2016 – April 2017
The coal industry should always consider the source of the information used in obtaining, validating and assessing the market information. At Coaldesk, Dan’s has conducted business with over 120 companies over the past two decades. These clients have relied upon Vaughn’s View market assessment in the analyzing, selling and/or buying of coal. Dan personally oversees the coal pricing report, checking it for accuracy and soliciting input to ensure it is as reflective of market prices as humanly possible. That is not to say that on occasion the Coaldesk team may miss capturing a market trade that skews that day’s closing marks. When we do, we make the correction and move forward. Our goal is to be an accurate, creditable price reporting service, bringing our clients a true independent assessment of the coal market.
The Coaldesk team believes we have the right mix of industry knowledge and market network to properly evaluate market conditions on a daily basis. The OTC market prices can be very volatile. It is not uncommon to see $0.50 to $1.00 price swing in the eastern coal markets during a trading session. Sometimes what causes price movement is fairly obvious, many times it takes a deeper grasp to explain and anticipate the next market move. Our team understands the drivers, we also know the fundamentals. We know the various U.S. coal basins, regional coal qualities, supply issues, production companies, end-users, governmental law(s) impacting demand, transportation matrix. We also follow fluctuations in power and natural gas prices, global coal demand and just about anything else impacting the coal industry. Simply put, we stay connected to the market so you can be confident in our assessments.