CAPP concern

IN ANOTHER sign things are looking a bleak for the US coal market, the latest US Energy Information Administration figures show the Central Appalachian coal price is still trending downwards.
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Noel Dyson

As at September 21, the CAPP, as it is known, was at $52.5 per ton.

The CAPP is the most widely referenced price for eastern coal in the US. It is used by coal producers, electric utilities, merchant generators and non-utility industrial coal users as a benchmark.

Going on a conversion rate of one short ton holding about 21 million British thermal units, the CAPP equates to about $2.50 per million British thermal units.

As at September 18, the Henry Hub natural gas spot price was sitting at $2.74 per million Btu, further narrowing the gap between coal and natural gas.

That is before the Environmental Protection Agency weighs in with its seemingly set coal regulations.

On the plus side, the New York Mercantile Exchange futures contracts for Central Appalachia coal look reasonably positive, although they do plateau.

Out to October 2015, the price is sitting at about $75 a ton.

At the moment, the Nymex CAPP contracts are traded for a maximum term of up to five years.

Coal remains the largest single power generating fuel in the US.

However, the EIA points out that the once relatively sedate cash markets for coal have become more volatile and very strong market forces.

Therefore, the EIA says in a note to the market, electricity utilities are no longer eager to enter into long-germ coal supply contracts that once were the industry norm.

Their preference is for short-term and more price flexible contracts that rely more on cash market purchases.

Add to that a host of environmental rules that make it more difficult for coal generators to continue operating and the push towards other fuel sources grows.

Further add to that a very competitive natural gas price – which is a cleaner burning fuel source than coal – and the problem the industry faces is clear.

It is getting squeezed on several fronts.

Even the export option could be fraught.

Coal producers have been working to establish coal export avenues through the US west coast.

There are moves afoot in California, among others, to have the greenhouse gas implications of coal sold to others factored into any deals.

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