Assessment of Coal Prices
(Commentary updated May 2020)
Coaldesk provides independent assessment-based coal market prices on reported and non-reported transactions, bid-asked quotes and market intelligence gathered on a regular basis.
The highest confidence level for assessing coal prices is through reported trades in the OTC (over-the-counter) market, followed by verified non-reported trades, and market intelligence gathered from participants responding to direct purchases and RFQs (request-for-quotes) solicitations. The OTC market has experienced rapid and steady growth the last 20 years, followed by a steep decline in activity since 2014. This new normal has led to more due diligence in uncovering transactions to reveal current coal prices.
In the late 1990’s the premise for coal trading in an OTC market began to take place. Historically, regional coal pricing experienced little volatility, but as natural gas increased its market share in electric power generation, price volatility for natural gas and coal followed. By 2001, coal trading and hedging began to be viewed as a viable tool to minimize price risk. The New York Mercantile Exchange (NYMEX) introduced a physical coal “futures” contract to the industry; a 12,000 Btu, 1% sulfur Central Appalachian, 1550-ton barge contract. This “Nymex” coal became the initial gold standard for coal trading.
Additional standardized coal products (coals have specific quality traits with multiple supply options) outside of NYMEX were developed and agreed upon among the coal trading community. They included coals within the NAPP, CAPP, ILB and PRB regions. The most liquid of these products, that have passed the test of time, have been the CAPP CSX and PRB 8800 coals.
It needs to be noted that non-standardized coal products continue to have their space in the marketplace. These products, such as, higher sulfur and/or higher ash bituminous coals (rail and barge) and the low- sulfur western Bituminous coals all have their place in the industry. And while these coals have limited exposure to the OTC arena, the need for price discovery remains critical to market participants.
There is no denying that OTC coal trading activity has slowed down since it peaked in 2013. The number of daily market participants (trade shops, hedge funds, producers, independent power producers, etc.) has fallen dramatically. Today, approximately a dozen companies utilize this market on a regular basis to hedge physical coal exposure. These companies are primarily active in the global coal market and hedge their portfolio by trading the international API 2 futures contract.
Monthly trading activity: November 2016 – April 2017
The vast majority of physical coal transactions are no longer reported in the marketplace, which creates a challenge when assessing market prices. Coaldesk works diligently to validate price data on non-reported trades by confidential price discovery with the parties involved. Coaldesk cannot share specific details of transactions, but can provide a non-biased perspective of price points and delivery periods.
The Coaldesk team believes we have the right mix of industry knowledge and market network to properly evaluate market conditions on a daily basis. 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, and transportation matrix. We also follow fluctuations in power and natural gas prices, global coal demand and just about anything else impacting the coal industry.
Over the past 20 years, Coaldesk (Dan Vaughn) has been assessing market prices across the various US coal basins. Dan’s analytical, sales and brokering experience gives credence to his ability to provide an independent market perspective. He has conducted business with over 120 companies and his clients rely upon Vaughn’s View market assessment in the valuing, analyzing, selling and/or buying of coal.
The bottom line…Coaldesk stays connected to the market so you can be confident in our assessments.