When the Francis Scott Key Bridge in Baltimore collapsed last week after a huge container ship ran into a support column, the fatal event sent ripples throughout the global supply chain that are still being assessed.
Authorities have closed an area within 2,000 yards of the wreckage, blocking access to the Port of Baltimore, the second-largest U.S. coal exporting hub behind Norfolk, Virginia.
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“Losing the port can prove to be a significant disruption if other ports can’t surge to provide an outlet for the coal that would have been exported through Baltimore,” says Northern Arizona University assistant research professor and supply chain expert Richard Rushforth. “We’re in the early days, still so we’ll have to see how this plays out.”
Coal’s Role in Global Economies
Last year, global coal demand hit a record high of more than 8.5 billion metric tons amid strong demand in emerging and developing economies, according to the International Energy Agency. Consumption increased by 8% in India and 5% in China, a sharp contrast to the record 20% drop in both the U.S. and Europe. Although the agency expects global coal demand to decline by 2026, it is projecting a fall of just 2.3%, leaving the world to still consume 8.3 billion metric tons.
In the U.S., thermal coal used to produce electricity has fallen from a peak of more than 1 billion short tons in 2007 to less than half of that in 2022 amid abundant supplies of cheap natural gas and increased use of renewables.
Last year, coal accounted for about 16% of the nation’s electricity generation. In 2022, coal accounted for about 35% of global electricity generation.
Metallurgical coal, a type of coal used in steelmaking to form coke, which is used as a fuel and reactant in blast furnaces, is also important to the global economy. The U.S. is the second biggest exporter of this “met” coal after Australia.
U.S. Coal Companies Shift Focus to Export Market
For coal companies, the long-term risk is that demand for thermal coal will eventually drop sharply as renewables take over. Metallurgical coal demand could also face eventual disruption if green hydrogen can gain a significant foothold in the steelmaking industry.
But for now, there is still plenty of demand for both thermal and met coal, especially in the export market.
That dynamic isn’t lost on some investors. Global mining and trading giant Glencore PLC (ticker: OTC: GLNCY) is in the process of buying most of the coal business of Teck Resources Ltd. (TECK) for nearly $7 billion and said it plans to spin off the combined unit. But according to reports in the Financial Times and Reuters, several large Glencore investors want to keep the coal unit in-house, which could generate upward of $6 billion a year in free cash flow for at least a decade.
In the U.S., coal miners have shifted their focus to export markets, especially in Asia, as domestic demand for electricity generation dwindles. In 2022, the U.S. exported more than 85 million short tons of coal, or about 14% of the nation’s production, to 71 nations, according to the Energy Information Administration. The biggest chunk, nearly 20%, went to India, where brick-making companies use thermal coal to power their operations.
The Port of Baltimore accounted for 28% of the nation’s coal exports last year, as shipments surged from about 20 million short tons to 28 million year over year amid growing demand for U.S. coal in Asia. More than 18 million tons of that was thermal coal, with most going to India, while about 9 million tons was met coal, with Japan and China being the biggest buyers.
[Read: 7 Best Mining Stocks for the Energy Transition]
The Key Bridge Collapse’s Impact on Coal Stocks
Consol Energy Inc. (CEIX)
Among U.S. coal miners who use the Port of Baltimore to export their product, it appears that Consol Energy is suffering the brunt of the impact, as vessels can’t get to its marine terminal.
“We are working closely with the Coast Guard, transportation authorities and city officials to safely restore vessel access to and resume normal operations at our Consol Marine Terminal,” the company said in a statement on Tuesday. “However, at this moment, we do not have a definitive timeline of when vessel access or normal operations will resume. We are looking at all available options to us to minimize or address direct and indirect impacts to the company and its operations.”
Last year, the company had record net income from the terminal of nearly $70 million from a record 19 million tons of coal that went through the facility, and 70% of Consol’s recurring revenues and other income came from export sales.
Moody’s Investors Service analyst Sandeep Sama said in a note that the terminal “is a key to the company’s plan to export more of its product internationally as U.S. coal-fired power plants are shuttered.”
Consol may be able to reroute some coal to domestic customers and use insurance to offset some lost revenue, Sama said.
Arch Resources Inc. (ARCH)
Meanwhile, Arch Resources has historically shipped a “significant amount” of met coal from mines in West Virginia through the Curtis Bay terminal in the Port of Baltimore, the Moody’s note said. The company has not issued a statement after the bridge collapse.
“Arch would potentially reroute some of its met coal volume through Newport News, Virginia, where it has a 35% interest in a port facility, which the company did in the past when there were constraints at the Curtis Bay terminal,” Sama said.
Other U.S. Coal Stocks
Peabody Energy Corp. (BTU), Alliance Resource Partners (ARLP), Alpha Metallurgical Resources Inc. (AMR) and Warrior Met Coal Inc. (HCC) are also U.S.-based coal export players, but the Moody’s note said they have little or no exposure to shipping through Baltimore.
Will the Baltimore Bridge Collapse Impact Coal Prices?
In the Port of Baltimore, the Curtis Bay piers are owned by rail company CSX Corp. (CSX), which, along with Norfolk Southern Corp. (NSC), serves Consol’s marine terminal.
“Mine operators are going to have to work with CSX and Norfolk Southern to find additional rail capacity in terms of coal cars as well as rail line capacity to reroute shipments to the Norfolk coal terminals until the Port of Baltimore is open,” says John Patrick Saldanha, a professor of supply chain management at West Virginia University. “My best guess is that is going to require a significant effort, and unlikely to result in a short-term resolution, leading to short-term supply-side shortages of coal exports that could also drive up coal prices.”
In the short run, Saldanha says there will likely be an increase in shipping costs for coal from West Virginia, Pennsylvania and Ohio as miners have to shift their shipments from Baltimore to Norfolk.
Moody’s Analytics economist Harry Murphy Cruise said in a note that the price effects on coal may be minimal, as global suppliers could reshuffle.
“Ultimately, most trade through Baltimore will find a new home port, minimizing price adjustments for coal and vehicles,” Cruise wrote. “That said, the reshuffle will squeeze other ports, potentially adding a smidge to shipping costs as delays spill to other goods.”
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Baltimore Bridge Collapse Disrupts Global Coal Trade originally appeared on usnews.com
