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Stock Market Tips China, not Trump, drives US coal export revival

If China does seek a way to retaliate against US proposals to impose import curbs on steel and aluminum, then targeting President Donald Trump’s favored coal would be tempting.
One of Trump’s key campaign promises in the 2016 election victory was to end the war on what he termed “beautiful, clean” coal. Figures released last week by the US Energy Information Administration (EIA) suggest he has met with some success.
US coal output surged the most in 16 years to reach 773 million short tonnes, equivalent to about 701 million metric tonnes, in 2017, the EIA said on February 16. Coal miners produced about 40.8 million tonnes more in 2017 than in 2016, the EIA said.
So far, so good for Trump. But the problem is that virtually all of the good news for US coal producers is on the export side—and this is mainly a China phenomenon.
Burning demand
China bought 5.95 million tonnes of US coal last year, more than double the 2.8 million of the prior year, while India remained the top Asian destination, with imports of 13 million tonnes, up from 8.7 million in 2016. Japan remained slightly ahead of China with imports of 6.9 million tonnes of US coal in 2017, up from 5.2 million the prior year, according to the vessel-tracking numbers.
These figures don’t make it explicit that China is the main driver behind the burgeoning US coal exports, given that the world’s largest importer of the polluting fuel only bought 3.15 million tonnes more from the United States last year than in 2016.
However, the main dynamic driving coal markets are Chinese import demand, and the 6.1 percent gain in its imports in 2017 from the prior year has helped prices for both thermal and coking coal remain at robust levels.
Sweet spot
For US coal exports to be competitive in Asia, and also in Europe, a thermal coal price of at least $70 a tonne is required, given the cost of mining, inland transportation and shipping in the United States.
Chinese import demand has ensured that thermal coal prices have remained in the sweet spot for US producers, allowing them to be competitive in Europe against exports from Colombia and South Africa, as well as in Asia.
The relatively high prices for coking coal, used in steel-making, has also helped US exporters of this higher-quality fuel, especially in India where they compete against supplies from top exporter Australia.