During 2012, the U.S. coal market faced headwinds, primarily due to low natural gas prices. It is estimated that U.S. coal production declined 70 million tons in 2012, a 7 percent drop, as reduced U.S. power generation was only partially offset by increased coal exports. Increasing natural gas prices from their April lows contributed to a switch back to coal for electricity generation. After the share of power generation from coal dropped to a low of 32 percent in April of 2012, coal generated 42 percent of U.S. electricity in November. This trend of natural gas to coal switching is likely to continue in 2013. While coal-fired generation declined 13 percent in 2012, the U.S. coal market is expected to see gains in 2013 as higher natural gas prices and improving economic activity lead to an increase in coal burn. Although utility stockpiles were down to 185 million tons by year end, they will still need further depletion in 2013 and this could restrict coal deliveries to power stations. One of the strongest drivers of U.S. coal in 2012 was the export market, as U.S. coal producers found demand for excess thermal coal from increased coal burn in Europe and the record level of imports by China and India. The U.S. exported 124 million tons of coal in 2012, a 15 percent increase from 2011. Exports are expected to come off their record pace, but remain at historically high levels in 2013.
Seaborne thermal coal markets remained steady over the final months of 2012. While seaborne prices are down nearly 25 percent since January 2012, increased imports by China and India have helped to support the market. China coal imports increased in December to 29 million tonnes and full-year 2012 imports reached 289 million tonnes, a 30 percent increase from 2011. India, driven by a 13 percent increase in coal-fired generation during the year, saw a 23 percent increase in thermal coal imports to 108 million tonnes. In 2012, seaborne thermal coal markets also found support from Japan and Europe as higher natural gas prices and concern over nuclear power shifted the generating mix to coal. Through November of 2012, Japan’s thermal coal imports rose 9 percent and Europe’s increased 16 percent. A supply surplus remains in the global thermal coal market, and this has kept recent prices range-bound between $85 to $95 dollars per tonne. The supply surplus and this pricing level continue to pressure high cost producers of thermal coal.