The outlook for thermal coal demand just took another hit

Photo by Robert Cianflone/Getty Images

Like China, demand for thermal coal, used primarily for power production, continued to diminish in the US in July.

According to analysis conducted by the CBA, LNG replaced thermal coal as the top source of US electricity generation during the month.

“The month of July marks the second time that natural gas was the leading source of power in the US,” wrote Vivek Dhar and Kofi Mensa, part of the CBA’s commodity research team.

The pair note that other power sources such as nuclear, wind and solar also increased in percentage terms, something they put down to “the growing preference of natural gas and renewable energy in electricity generation”.

Given the steep declines recorded in LNG prices, along with US Environmental Protection Agency’s recent policy to cut greenhouse emissions from US power plants, the pair may further reduce demand for coal in the years ahead.

“With natural gas leading all energy sources, the US is expected to have preference for power generated via gas in the medium term as costs to acquire LNG have declined,” the pair wrote.

“The US Environmental Protection Agency’s recent policy to cut greenhouse emissions from US power plants adds further downside to coal demand in the US, as coal-fired plants emit significantly more greenhouse gases than natural gas-powered plants. The new regulations aim for renewable energy sources to supply 28% of total US power by 2030.”

The news comes at a bad time for thermal coal producers, particularly given weak demand from China.

In August, Chinese thermal coal imports dropped 17.7% compared to a year earlier, leaving total imports to the nation down 37% between January to August compared to the same period of 2014.

“The fall in China’s thermal coal imports reflects slowing economic activity, and a preference away from thermal power as pollution concerns grow amongst China’s coastal cities,” said Dhar and Mensa.

According to data supplied by the Intercontinental Exchange, front-month globalCOAL Newcastle thermal coal futures closed Monday’s trade at $52.95, taking this year’s decline to 15.01%.

From early 2011, the price has now fallen 62%.

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