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Fitch Raises Thermal Coal Price Predictions as Energy Crisis Persists

Fitch Ratings has cut the price assumptions of most metals and mining products on fears of revised growth expectations but has raised the predictions of thermal coal costs on the back of the growing energy crisis.

As European gas prices continue to rise, the ratings group has predicted that reliance on coal-powered energy generation will increase over 2022-2025.

Prices will rise even higher over 2024-2025 as expected new capacity in coal-producing countries remains limited and coal mining costs increase. However, long-term assumptions for thermal coal remain unchanged as Fitch predicts "consumption in China should gradually decline".

A global economic slowdown and expectations of weaker short-term demand have pushed copper assumptions lower over the next year, however medium- and long-term predictions remain buoyant due to anticipated demand for the metal as part of the energy transition.

Lower steel demand has forced the price assumptions down for a range of mining products, including iron ore, coking coal and nickel.

A build-up of inventories combined with falling steel production, producer margins and input requirement have damaged the short-term demand for iron, while a switch to thermal coal production has tempered prices of coking coal, but medium- to long-term views remain unchanged.

Subdued demand from the stainless steel sector, alongside healthy production levels from Russia and Indonesia have weakened the short-term case for nickel prices, but long-term demand from electric vehicle production should boost the investment case.

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Coal Mining Companies Complain About Rail Service, Particularly in the East

The trade group representing coal mining operators has asked federal regulators to take action regarding erratic rail service, particularly in the east on CSX Transportation and Norfolk Southern.

Mines have had to curtail production due to poor rail service that’s only getting worse even as demand for coal rises, the National Mining Association told the Surface Transportation Board in a letter last week.

“While mines are running full speed ahead, the same cannot be said for rail, and our members desperately need relief,” the mining association said.

A CSX Transportation empty coal train rumbles past the C&O-style cantilever signal at WD Cabin on the CSX’s Big Sandy Subdivision near Burnaugh, Ky., in May 2020. 

Photo: Chase Gunnoe

Empty CSX and NS hopper trains arrive hours or days late, one customer said in a National Mining Association survey. Some mining companies have brought in third parties to handle switching and loading of trains at their facilities.

“It is critical for the Board to further hold Class I railroads accountable and to provide additional relief. The NMA urges the Board to take additional action to confront these ongoing service problems that cripple the U.S. supply chains,” the association wrote.

CSX and NS say they’re working to ease ongoing crew shortages.

“CSX is reviewing the letter and intends to provide a response. We always appreciate hearing from our customers. However, the commentary provided in the NMA letter is without attribution and anecdotal, making it difficult to resolve issues in order to improve service,” spokeswoman Cindy Schild says. “Staffing shortages have been the root cause of the service issues experienced in certain regions of CSX’s network. CSX is working diligently to improve service and we are pursuing every reasonable option to increase train-and-engine (T&E) employee hiring and retention. CSX’s average daily active T&E population and availability numbers have shown steady improvement as a result of our hiring and retention efforts.”

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West Virginia Coal Production Increases

West Virginia coal production increased from the previous week by +0.9%. Production in the state’s NAPP region increased +2% and production in the CAPP region of the state decreased by -0.5% week over week. Compared to the same 36 weeks of 2021, year to date statewide coal production is up +5.8%. +4.7% in the state’s NAPP region and +7.1% in the CAPP region of the state.

U.S. coal production also decreased slightly week over week by -0.5%, with gains in the Appalachian and Interior coal regions being offset by a reduction in week over week production from the Western region. Production from the Appalachian coal basin increased +0.7%, Interior region coal production increased +4.6% and Western region production decreased -2.3%. Compared to the same time last year, U.S. coal production is up +4%. +1.4% in the Appalachian region, +2.2% in the Interior region and +5.8% in the Western coal region.

EIA reported spot prices for U.S. thermal coal increased for all three eastern coal regions. Northern Appalachian coal prices increased +21% (+$30.65 / ton), Central Appalachian coal increased +3% (+$5.75 / ton) and Illinois Basin coal increased +3.6% (+$6.96 / ton). Pricing for Powder River Basin coal decreased from the previous week by -0.3% (-$0.05 / ton) and Western Bituminous pricing declined -0.3% (-$0.15 / ton). Compared to the same week of 2021, Northern Appalachian coal prices are +202.1% higher, Central Appalachian, +211%, Illinois Basin, +457.8%, Powder River Basin, +36.1% and Western Bituminous, +44.7%. Average U.S. natural gas prices decreased from the previous week by -0.7%. Compared to the same week of 2021, average U.S. natural gas prices are up +101.8%.

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EPA Releases Final Determinations of Attainment Status for Air Quality Standards for Smog

Today, EPA announced the final determinations for whether certain areas have met the 2008 or 2015 National Ambient Air Quality Standards (NAAQS) for ground-level ozone, as required by the Clean Air Act. EPA is finalizing determinations regarding the air quality progress of six nonattainment areas classified as “Serious” for the 2008 ozone NAAQS, and for 28 nonattainment areas classified as “Marginal” for the 2015 ozone NAAQS. These final rules establish new timeframes and next steps states must take to improve ozone air quality in remaining nonattainment areas. EPA’s final decisions are based on a scientific evaluation of certified, publicly-available air quality monitoring data for the years 2018 – 2020.

“These determinations are an important step in ensuring that communities across the country have the clean, healthy air quality they deserve, and that areas of the country that are not currently achieving these health-based standards take steps required by law to reduce ozone pollution,” said EPA Administrator Michael S. Regan. “We will continue to work with our state partners to track air quality, reduce air pollution, protect public health and ensure clean air for all.” 

Ground-level ozone is not directly emitted to the air; it forms when pollutants emitted by cars, power plants, a wide range of industries, and other sources chemically react in sunlight. Breathing ozone can cause coughing and a sore or scratchy throat, make it more difficult to breathe, inflame and damage airways, make lungs more susceptible to infection, aggravate lung diseases such as asthma, emphysema, and chronic bronchitis and increase the frequency of asthma attacks. Ozone is most likely to reach unhealthy levels on hot sunny days in urban areas, but it can still reach high levels during colder months. It can also drift long distances and harm air quality in rural areas.

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The Next Grid Crisis is in New England

New England recognizes it has a dangerous fuel security problem on its hands. And a telling factor in that crisis is what it doesn’t have: fuel diversity in the form of coal capacity. New England’s overreliance on natural gas, constrained gas delivery system, and inability to site and build alternatives is barreling towards a completely foreseeable disaster with no one seemingly capable of course correction.

With all stakeholders well aware of the problem, instead of getting better, New England’s fuel security challenges are getting worse. “We’re going into this winter basically crossing our fingers and hoping,” Federal Energy Regulatory Commission member James Danly said of the situation.

There’s nothing even approaching a roadmap out of the crisis. FERC Chairman Richard Glick said of New England’s reliance on gas, “it’s not sustainable….  we essentially have to buy enough time to get those transmission lines built, to get the offshore facilities up and running and some of these other programs, demand response, up and running.” How much time is a painfully open-ended question.

Despite ardent support for renewable energy and decarbonization, New England is running into even more ardent opposition to siting and building it. “I’m really worried about how difficult we’ve made it in New England to build anything,” said Cheryl LaFleur, a former FERC commissioner who now chairs the ISO New England’s board of directors, the region’s grid operator. “If we’re going to use more renewables, we actually have to site them and build them….”

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