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Teck Resources Ltd (USA) (TCK), BHP Billiton Limited (ADR) (BHP): China Burns Half of World’s Coal – Good or Bad for U.S. Producers?

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According to a new report, “BP’s 2013 Statistical Review of World Energy,” China consumed just over half of the total coal burned on the planet in 2012. Consumption was up 6.1% for the year:

The Asia Pacific region, which includes China, India, South Korea, Japan and Australia, accounted for nearly 70% of the world’s coal use in 2012. China alone accounted for more than 50% of global coal use for the first time ever…

In the U.S., lower natural gas prices caused coal-to-natural gas switching in 2011 and most of 2012. As a result, domestic coal consumption fell by almost 12% last year. Increasingly, all eyes are on U.S. exports of both thermal and coking coal. 2012 was a record year for exports, coming in at 126 million short tons. Without continued strength in exports, domestic coal prices will remain at depressed levels for an extended period.

Teck Resources Ltd (USA) (NYSE:TCK)

China Waxes and Wanes Without Warning

Even if the industry continued to see robust exports, which unfortunately is not the case as exports are slowing, China’s increasing dominance of the seaborne coal trades cannot possibly be a good thing for U.S. producers. China has been and will likely continue to be a wildcard. In some months China appears to have an insatiable appetite for imports. At other times, China’s absence from the seaborne market causes coal prices to swoon.

A big problem for U.S. producers is location, location, location. Several major coal exporting countries are better situated to export coal to China. Australia and Indonesia are the largest exporters in the world, Australia especially in coking coal and Indonesia in thermal coal. Colombia and South Africa have better transport logistics to a key importing market, India. Taken together, an emerging block of countries, most notably Mozambique, are moving up the export curve as well.

Make no mistake, when global coal prices are robust, everyone can make hay. In fact, the U.S. has enjoyed strong exports, more so to Europe and South America than to Asia, for the past three years. However, as I mentioned, exports in 2013 will be less than 2012, and 2014 is highly uncertain. Exports aren’t expected to collapse, but what producers really need is a 10%-15% increase, per year. However, the EIA is forecasting a 10% decline in 2013 vs. 2012.

Huge Powder River Coal Basin Doomed Without More Export Capacity

In the Powder River Basin, “PRB” of Wyoming and Montana, Peabody Energy Corporation (NYSE:BTU), Arch Coal Inc (NYSE:ACI) and Cloud Peak Energy Inc. (NYSE:CLD) desperately need new port facilities on the west coast to export to Asia.

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