Black hole: US coal stocks now down over 60% in 2012 as thermal price hits 2-year low

Coal for power generation at the port of Newcastle in Australia, the benchmark for Asia, was quoted at $87.30 a tonne on Monday, its lowest level since June 2010 and down more than a fifth since the start of the year.

The collapse in thermal coal prices have seen the shares of US producers – which have been switching to exports as domestic demand declined – plummet this year and the bloodletting continued on Monday.

Alpha Natural Resources, which announced on Friday it is closing plant in northern and southern Kentucky, hit an all time low in New York trading on Monday. Stock in Arch Coal continued sharp declines and is now trading at a 10-year low. Industry bellwether Peabody Energy hit a three year low and is down a staggering 63% since the start of the year.

FT.com says analysts now expect “meaningful” cutbacks in production to support prices and that “coal executives believe that as much as 10 per cent of the production serving the seaborne market could be losing money at current prices”:

“There is blood in the water,” said a senior European-based coal trader.

A steep drop-off in demand from Asia – last week it was reported that at least 30 coal carriers with unsold cargo are floating off China’s coast – exacerbated by high inventories thanks to a mild northern hemisphere winter and a surge in US exports have led to a collapse in thermal coal prices.

US producers have been switching to exports as domestic demand collapses. According to the latest stats from the Energy Information Administration (EIA), coal-fired power stations represented just 36% of US electricity in the first quarter of 2012 — a rapid decline from 44.6% just one year ago.

Thermal coal hit a post 2008 financial crisis high above $140 a tonne in January last year.

In contrast to the sharp declines in coal for electricity generation metallurgical coal has managed to stay above $200 a tonne this year. Heavy rains in Australia at the start of last year drove the price briefly to $300 a tonne, but historically $200 and above translates to robust reward for coking coal miners.

Image from the US National Archives shows miners line up to go into the elevator shaft at the Virginia-Pocahontas Coal Company mine near Richlands in April 1974.