December 2014 coal markets were mixed on the month, with eastern coal caught in the rout that has broadly affected energy commodities on slowing global economic growth and weak winter demand. The NYMEX CAPP prompt-month shed $5.45/ton, or 10.0%, 
ahead of the holiday season while physical markers showed little movement on light trading. In sharp contrast, NYMEX PRB gained $1.20/ton, or 9.5%, as continued inventory rebuilding supported steady production and incremental spot purchases.
Interfuel competition may intensify during the first quarter of 2015 on a warmer-than-normal winter outlook. Natural gas markets fell off sharply in December 2014, as winter weather turned mild in the core Midwest and Northeast consuming regions and continued strong supply eroded storage deficits. Henry Hub dailies opened December 2014 at $4.30/MMBtu, and collapsed to as low as $2.74/MMBtu before rallying above $3.00 to close the month. Net gas withdrawals from storage slowed during the month, cutting the storage deficit in half relative to historic levels. Gas pricing has shown significant volatility, mostly to the downside this winter season. Absent a boost from weather, pricing below $4.00 will be the norm with further discounts in the Marcellus/mid-Atlantic region increasing prospects for coal/gas competition in electricity markets for the first quarter of 2015.
Recent pricing momentum has boosted forward strips for PRB, while bituminous marks remain under price pressure, as noted above. The chart below shows SNL Energy’s current price forecast for the PRB 8800 and 8400 markers.
Excerpt:
Coal production and demand
Year-to-date production levels through mid-December 2014 continued near 19.0 million tons per week, with production surging to 19.7 million tons per week during the month. Most of this growth came in the Western U.S., with the East holding steady. The 52-week moving average production level remains a bit below this time last year. Both firm production and the strong growth in PRB prompt-month pricing indicate more volume being moved than in the first half of the year, perhaps 300 thousand tons per week to 350 thousand tons per week of additional production. If this additional production holds to close out the year, 2014 total production will come in close to 2013, and may provide a boost to first-quarter 2015 production.
However, little relief from the demand side appears in store for 2015, if a mild winter prompts competition between natural gas and coal plants during the first quarter. Ongoing weakness in seaborne markets for steam coal has kept downward pressure on export volumes through October 2014, with little growth seen for metallurgical coal as well. Export weakness is likely to persist into 2015. Matched against expected coal plant retirements over the next two to four years, SNL Energy expects flat to declining annual tonnage, with gains driven principally by periods of higher natural gas pricing and a resumption of export growth.
Keep reading the full report and analysis here: http://www.snl.com/InteractiveX/Article.aspx?cdid=A-30442005-13879
