Despite at least 20mn t/yr of coking coal production capacity having been temporarily removed from the US and Canada in recent weeks in response steel mills in Europe and the Americas continuing to idle blast furnaces, more closures are expected.

 

Many US mining companies that have built up large inventories over the past few months will continue selling from their inventories while operations are halted.

 

"More closures would be necessary, as demand shows little sign of recovery," said one US mining firm.

 

Recent exits

The US mine closures appear to be related to the effect of the virus on coking coal demand rather than its direct effect on operations. As of 16 April, there were 27,735 confirmed cases of Covid-19 in Pennsylvania, where Corsa recently reopened its mines following the reversal of a decision by the governor to close all mines in the state.

 

Pennsylvania is also the location of Consol's Bailey and Enlow Fork mines. Consol has reopened Bailey mine, having closed it for two weeks from 30 March after employees tested positive for Covid-19. But the company is temporarily idling Enlow Fork "due to the weakness in coal demand and economic slowdown related to the pandemic". Enlow Fork has an annual capacity of 11.5mn t of coking and thermal coal.

 

In Virginia, where Coronado's major Buchanan mine is located, there were 6,889 confirmed cases of Covid-19 by 16 April. Coronado shut all three of its US mines on 29 March and withdrew its guidance of 19.7-20.2mn t for this year. Buchanan mine produced 4.48mn t of low-volatile coking coal last year, while the most recent data for Logan and Greenbrier mines in West Virginia are from 2017, when they produced 1.7mn t of high-volatile and 400,000t of mid-volatile coking coal, respectively. Coronado mainly produces coking coal and has 750,000t of coking and thermal coal in its US inventories.

 

West Virginia, which borders on Virginia and Pennsylvania, has 723 confirmed cases of Covid-19 and is the location of the majority of Contura's mines, and Rhino's and Blackhawk's coking coal mines. Contura on 3 April idled the majority of its mining operations for at least 30 days and withheld its 2020 coking coal sales guidance of 11-11.4mn t. The mining firm sold 5.17mn t in the final quarter of last year. A representative of Contura in March said the company had built up "more inventory than I'd like".

 

Blackhawk and Rhino suspended production at all of their mines from 23 March and 30 March, respectively. Rhino sold 2.7mn t of coking and thermal coal last year and warned of potential insolvency in March.

 

Coking coal mining firm Ramaco recently closed its Elk Creek high-volatile A/B coking coal mine in West Virginia, but said the Elk Creek preparation plant will remain operational and has sufficient inventory to meet all existing obligations. The company estimates that the mine could produce 2mn t of low-volatile coking coal annually. Ramaco's Berwind mine, on the border of Virginia and West Virginia, remains open.

 

Canadian mining company Teck Resources has reduced production capacity at its coal mines to 80-85pc and will be supplementing sales from its inventories. The company estimates its first-quarter coking coal sales at 5.6mn t, exceeding its previous guidance of 4.8 to 5.2mn t.

 

Prices under pressure

A total of 14 blast furnaces have been idled in Europe, and at least eight are operating at 70pc capacity, while the US steel industry is now operating at 56pc of full capacity.

 

The capacity cuts have reversed the price increase seen for coking coal in the first quarter, with Argus' daily fob Hampton Roads assessment for low-volatile, high-volatile A and high-volatile B coking coal grades at $128/t, $127/t and $120/t, respectively, on 16 April, down by an average of $11/t from year-to-date highs reached in March.

 

The moderately high level of inventory and the remaining production is more than sufficient for the current level of demand, as indicated by the downward movement of prices. Market participants in Europe and the US expect further mine closures rather than a shortage of coal in the coming weeks, but some see the possibility of US and Russian production or supply chains being heavily disrupted by the virus by the time Europe's steel industry starts to attempt a recovery. （Argus Media）