Given the recent pullback by international banks from coal financing and an array of bearish government policy towards coal-fired power generation – including Germany’s 2018 decision to phase out coal-fired power stations by 2038 – it would be easy to think the last year has been a miserable one for coal traders. But not so, says Peter Bradley, chief executive of Javelin Global Commodities, which wins Energy Risk’s coal house of the year for the fourth consecutive year.
Although European coal imports are declining, demand globally continues to grow, Bradley points out. “Every year it increases at varying rates, but it’s expanding, and the real question is, ‘how is supply meeting the growth in demand?’”
Developing new mines doesn’t perfectly offset the retirement of old mines or the increase in demand from Asia and the Middle East, he says. This, coupled with seasonality of demand, can create volatility in pricing. Increased demand from Asia means coal that is traditionally headed to Europe is now heading east, with US coal exports increasing to meet the shortfall.
“This is why thermal coal pricing in the Atlantic basin has been very strong over the last 18 months to two years, despite a drop in European imports,” Bradley says.
US coal exports rose to a five-year-high in 2018, from 96,953 million metric tonnes in 2017 to 115,632 million tonnes, according to the US Energy Information Administration.
UK-headquartered Javelin has certainly capitalised on the buoyancy of the market, massively increasing its volumes and footprint over the course of 2018. The trading house shifted 16.5 million tonnes of thermal coal in 2018 – a 277% increase on the previous 12 months, while its activity in metallurgical coal went from just 96,000 tonnes in 2017, to 3.2 million tonnes in 2018 – a 3,350% rise.
Bradley is clear on why the increase occurred: its partnership with Black Jewel, an Appalachia-based metallurgical and thermal coal producing company. The deal was inked in late 2017, but the US firm wasn’t fully integrated into the Javelin set-up until 2018. The Javelin chief executive credits the tie-up for increasing the firm’s total volumes by 60%, and taking it from a standing start in the metallurgical coal market to becoming a major global player.
Bradley says the success of the Black Jewel venture demonstrates the value of the partnership model that was behind the firm’s initial creation in 2015 with Ohio-based Murray Energy. And he says the Black Jewel deal was a particular success because it gave a firm, which is a multiple producer of different sources of coal in the US, access to Javelin’s logistics and global presence. This view is backed by Black Jewel’s chief executive, Jeff Hoops, who said the Javelin logistics chain management has delivered “significant value” to his firm.
The coal price has trended upwards over 2018, but it’s been very volatile at the same time. In Europe, in particular, it has tracked German power prices, which were much stronger on the back of the high EUA price last year, which has fed into a strong demand for hedging forward coal by power utilities
Peter Bradley, Javelin Global Commodities
Logistical prowess has been key to Javelin’s success so far, and it continued to expand its capabilities in this area in 2018. The firm set up a new export route to Asia from Mexico’s Guaymas in 2017 and transported a record 1.1 million tonnes of Utah and Colorado coal via the Mexican port in 2018, the highest level ever experienced by the facility. Likewise in the US, Javelin exported a record 580,000 million tonnes of North Appalachian coal from Sparrows Point, Baltimore.
And even Europe, where policy-makers are pivoting away from coal, proved fertile ground for Javelin last year, as a result of massive price hikes in European Union emissions allowances (EUAs) traded in the EU emissions trading system. These went to nearly €25/tonne ($28/tonne) by the end of December, from around €10/tonne at the start of the year, increasing volatility across all elements of the power market, including coal.
“The coal price has trended upwards over 2018, but it’s been very volatile at the same time,” Bradley says. “In Europe, in particular, it has tracked German power prices, which were much stronger on the back of the high EUA price last year, which has fed into a strong demand for hedging forward coal by power utilities.”
This increased demand for coal hedging from European utilities was another bullish factor for coal trading in 2018 in a complex that was underpinned by bullish supply and demand fundamentals, says Bradley. He points to the large number of new-build coal-fired power stations commissioned in South-east and north-east Asia in the past two or three years, as well as coal-fired power, and cement producing, facilities in North Africa and the Middle East, over the same period, as examples of the new drivers of demand for coal.