As US coal markets face a long-running decline in domestic demand, dry bulk commodity trading and marketing firm Javelin Global Commodities is making a name for itself in the space – not only by providing risk-management solutions to coal producers, but also by forging new routes to premium markets.
Formed in 2015 with investment from long-term partners Murray Energy, a US coal firm, and European utility Uniper (formerly E.on Global Commodities), Javelin currently trades with more than 115 counterparties from offices in London, New York, Switzerland, Singapore, Israel and Houston. In 2017, it delivered more than 16.5 million metric tons of coal – approximately 80% increase on 2016 volumes – and it expects to ship more than 60 million metric tons in 2018. The company is also active in iron ore, freight and hydrocarbons.
In the coal markets specifically, Javelin concentrated its efforts on thermal coal at first but, over the course of the past year, it has leveraged its success in thermal to develop a metallurgical coal offering. This strategy has been boosted further by the recent formation of a joint venture with Central Appalachian coal producer Blackjewel and Javelin’s long-term partner Uniper, announced in December 2017.
The agreement covers the marketing of all thermal and metallurgical coal from Blackjewel’s 30 mines in Kentucky, Virginia, West Virginia and Wyoming. Javelin and Uniper will provide hedging, logistics, execution and optimisation services. Annual production from these mines is expected to grow from five million tons per annum at present to 11 million tons by 2020, including seven million tons of metallurgical coal.
The move into metallurgical enables Javelin to take advantage of significant overlap across its customer portfolio. “We work with organisations that produce thermal coal as well as metallurgical coal and they were looking for the same skills and tools that we have brought to the thermal side of the market,” says Peter Bradley, London-based chief executive of Javelin. This includes risk-management capabilities, cargo aggregation, funding working capital and building up export channels for new and existing mines.
Blackjewel also provided Javelin with access to the Powder River Basin market, where it has recently acquired two Wyoming mines. “That has opened a whole new market and product segment for us and it gives us the complete suite of coal from all basins throughout the US,” he adds. “So we can touch every single type of coal generated in the US. That’s a huge advantage domestically and, of course, for export as well.”
We work with organisations that produce thermal coal as well as metallurgical coal and they were looking for the same skills and tools that we have brought to the thermal side of the market
Peter Bradley, Javelin Global Commodities
Javelin provides solutions to help producers lock in margins and compete in the changing market, including variable pricing and volume fuel options, and contracts that include physical power offtake, tolling and power price hedging. However, for US producers in particular, the ability to export coal is also becoming key to survival.
According to the latest figures from the US Energy Information Administration (EIA), domestic coal consumption fell by 8.4% between 2015 and 2016, with natural gas surpassing coal as the leading source of US electricity generation in 2016. “We’re no longer just competing with fellow global coal producers. Today we’re also in a head-to-head battle with low natural gas prices and renewable energy,” says Robert Moore, chief operating officer and chief financial officer at Murray Energy. As domestic demand continues to tighten, producers need to widen their customer base by looking for new markets.
As a result, US producers are increasingly looking to sell into other regions, with Asia fast becoming a key source of demand. US coal exports increased by 61% between 2016 and 2017 and, while Europe continues to be the largest recipient, according to the EIA, exports to Asia more than doubled last year from 15.7 million short tons in 2016 to 32.8 million short tons in 2017.
Helping producers to access these new markets has become a key part of Javelin’s offering. “Javelin has made an immediate impact on the organisation by developing new strategies for marketing and trading our coal in both the domestic and export markets,” says Murray Energy chairman, president and chief executive, Robert Murray.
In 2017, Javelin developed the rail and export logistics for Utah and Colorado coal using the Guaymas port in Mexico, opening up a new sales channel to Asia. “To make mines in the Utica Basin (Colorado and Utah) viable, an export channel was needed,” Bradley says. “However, US export channels are [typically] either brought through California, where there is very limited port capacity at the moment, or the Gulf Coast, which is further away and brings the coal into the discounted Atlantic market.”
He adds that the Atlantic market’s API-2 benchmark typically trades at a $10–20 per ton discount to the Newcastle and API-4 benchmarks that represent the Pacific coal markets.
Two shipments a month (approximately 150,000 tonnes) are now leaving the port, mostly containing coal from Murray Energy. “This allows producers to continue to get more efficiency at a lower cost from their mines. And then, on the customer side, it opens up a new source of low-sulphur coal for the Asian markets,” Bradley says, adding that this provides an alternative to coal coming out of Russia, Indonesia and Australia.
In three years Javelin has developed a number of customer-led solutions to drive the coal market forward. With declining domestic demand in the US and growing competition from natural gas and renewables, coal producers have not only benefited from its risk-management capabilities last year, but also from Javelin’s efforts to develop new export options.
The week on Risk.net, September 8-14, 2018Receive this by email