OREANDA-NEWS. US coal exports are likely to drop through at least the first several months of 2016 as the dollar maintains strength against competing currencies and weak demand persists for some of the country's biggest foreign customers.

Exports are on track to end this year about 22pc below 2014's 97.3mn short tons (88.2mn metric tonnes) and could fall by at least another 5pc next year. Nearly all US producers have pulled out of the market, leaving sales to participants needing to winnow inventories and the few suppliers that can break even or make a small profit at current prices.

Market conditions have sunk low enough that some sellers of US thermal coal would rather pay a penalty to terminal operators than ship tonnage under contract. Most coking coal suppliers continue to honor take-or-pay agreements.

In the year through October, US shipments of metallurgical coal had fallen by 21pc from the same period of 2014, to 40mn st. Steam coal exports dropped by 23pc to 31.9mn st, according to US Census Bureau data. Both markets will remain under pressure next year but steam coal likely will bear the brunt of the burden.

Exports to the US' five biggest coal trading partners could fall again next year, although the pace of decline may vary. The stronger dollar and tougher environmental regulations have had uneven effects on the global market for US coal.

Shipments to the Netherlands, the biggest destination for US coal, have fallen by just 2.3pc, to 10.2mn st in this year through October. But exports to the UK, Brazil, Canada and Germany dropped by much more.

Total US exports to its top five destinations dropped by 21pc to 28.1mn st for the year through October. Shipments to these countries represented 44pc of US exports. Brazil has been the second biggest destination for US coal, taking 5.49mn st of coal through October, down from 6.73mn st in the same period of 2014.

The strengthening dollar can be tied to much of the decline, because it has allowed competing countries' exporters to lower prices in international markets and still make a profit. The daily index for coal delivered to Amsterdam-Rotterdam-Antwerp over the prompt 60 days, a benchmark for international coal into Europe, fell to a 12-year low of $46.89/t on 7 December. Argus expects European delivered prices to rise next year but remain well out of the money for US producers.

The dollar has risen by 10pc against the euro over the past year, to $1.0943/€1 yesterday. Its gains against the Colombian peso and the South African rand have been even greater.

For the UK, which had been the second biggest importer of US coal last year, the dollar has risen by 4.5pc against the pound, making US shipments to utilities there more expensive when converted to local currency.

But at least some of the decrease in exports to the UK is a reflection of that country's move away from coal. Those moves in the UK and elsewhere will have a more lingering effect on US coal trade. The direction of natural gas and crude oil prices, which have weighed on global coal markets, will also determine how strong seaborne coal markets are next year.

The UK has been growing its renewable capacity and, in April, it increased its carbon tax as part of its plan to phase out coal-fired power by the end of 2025. Low-priced natural gas has also weighed on coal-fired generation this year. The UK's coal-fired power output has fallen by more than 20pc this year, totaling 146.7TWh from 1 January-20 December.

US coal thermal coal exports to the UK fell nearly in half for the first 10 months of this year, to 2.05mn st. Total shipments to the country, including coking coal, tumbled by 51pc to 4.09mn st.

The Canadian province of Ontario closed its last coal-fired power plant last year and Alberta has vowed to eliminate coal generation by 2030. Canada took 1.49mn st of US thermal coal this year through October, down from 2.12mn st in the same period of 2014. That decrease offset a 0.2pc gain in coking coal shipments, to 3.36mn st.