US coal buyers have modified their restocking strategies going into 2021 to reducing committed volumes from previously seeking more optionality in their contracts amid uncertainty around the ongoing Covid-19 pandemic, market sources say.
“The buyers are aware of the risks in buying anything further out than a few quarters,” one producer said.
One concern is local governments could shut down businesses to stop the spread of the virus after the holiday season, potentially reducing power demand. The virus already has cut into power demand nationally, and that is expected to carry over into 2021, according to the US Energy Information Administration (EIA).
“Reduced economic activity related to the Covid-19 pandemic has caused changes in energy demand and supply patterns in 2020 and will continue to affect these patterns in the future,” EIA said in its most recent Short-Term Energy Outlook released 8 December.
EIA expects the electric power sector to burn 435.6mn short tons (395mn metric tonnes) of coal this year, down by 19pc compared with 2019. The agency said demand will climb to 537mn st in 2021, but some buyers think the virus and the economic fallout could stifle that rebound.
“Things are foundering once again,” a buyer said. “Not sure if we will see a modified lock-down due to Covid spread over Thanksgiving and into Christmas.”
He said he expects Covid-related issues to last into the early summer, making forecasting coal burn a challenge.
That has made buyers more conservative, locking in lower firm volumes with a larger portion of the contracts optional, another producer said.
“There is going to be a lot of spot demand,” the producer said.
This could present other challenges in the new year. EIA expects US coal production to fall to 521.5mn st this year, down by 26pc compared with 2019. The agency said production will climb to 624mn st in 2021 as higher natural gas prices result in power producers shifting from natural gas to coal. But producers are expected to limit production to match their contracts.
“Only if and when the export market appears to present opportunity are they going to expand production,” the buyer said. “This will take a lot of coal off the spot market.”
