Coal Prices So Low This Producer Is Eating Fees to Avoid Exports

  • Miner Cloud Peak paying to cut exports from Canadian terminal
  • U.S. coal exports forecast to be lowest since 2009: EIA

American coal producer Cloud Peak Energy Inc. has agreed to pay quarterly fees to a Canadian port owner to avoid sending more exports abroad amid a slump in Asian demand and a stronger U.S. dollar.

Cloud Peak Energy is making the payments to Westshore Terminals Investment Corp. to cut the amount of coal it’s obligated to export from Westshore’s port in British Columbia from 2016 to 2018, the companies said in separate statements Wednesday. Westshore said it expects its 2016 coal volumes to be 13 percent below previous estimates because of its amended agreement with Cloud Peak.

The arrangement comes as U.S. coal miners face their worst market downturn in decades. Mounting environmental regulations, cheap natural gas and a stronger U.S. dollar are all shrinking demand for their supplies abroad.

“Seaborne thermal coal markets continue to be oversupplied due to a combination of a large reduction in Chinese thermal coal imports, down 36 percent so far this year, and a strong U.S. dollar,” Colin Marshall, Cloud Peak’s chief executive officer said Tuesday in a call with analysts and investors to discuss the company’s earnings.

The U.S. will export 77 million tons of coal in 2015, down 39 percent from a record 125.7 million in 2012 and the lowest since 2009, the U.S. Energy Information Administration said in a forecast on Oct. 6.

Cloud Peak said it has already made an upfront payment to Westshore as part of the deal. Its throughput agreement with the company lasts until the end of 2024. While Westshore will be foregoing some of the revenue it had anticipated from its contract with Cloud Peak, the company said it’ll benefit from the payments and cost reductions associated with the reduction in tonnage at the terminal.

Cloud Peak is also in “active discussions” with Berkshire Hathaway Inc.’s BNSF Railway Co. about modifying so-called take-or-pay commitments for the rail service supporting its exports to Asia, the company’s statement shows. Marshall said he still sees an opportunity to export coal to Asia in the long term, once the market is balanced.

Before it's here, it's on the Bloomberg Terminal.