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US coalminers’ Asia ‘pipe dream’ evaporates

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US coal miners’ last-ditch hope for shipping big volumes to Asia has crumbled as the developer of a sprawling export terminal abandons its project on the Pacific coast. 

The Millennium Bulk Terminal would have loaded 44m metric tonnes a year of thermal coal for export to electric utilities — a potential boost for producers reeling from the decline of coal-fired power generation in the US. 

But the project’s bankrupt owner on Saturday pulled the plug, making it the last of more than half a dozen proposed west coast coal ports never to be built. “It’s the end of the pipe dream that Asia can save the US coal industry,” said Clark Williams-Derry, analyst at the Institute for Energy Economics and Financial Analysis, a research group that favours clean energy. 

The terminal’s demise is a victory for climate activists who fought to hinder coal exports and their associated carbon emissions. It is a blow to the economies of Wyoming and Montana, whose open-pit mines in the Powder River Basin would have supplied the facility on the Columbia river in coastal Washington state. 

It also runs counter to the pro-coal agenda of outgoing president Donald Trump. 

Line chart of Shipments of US thermal coal by destination (million short tons) showing Miners’ export dreams fall short

US coal producers began to pursue deepwater export terminals as cheap natural gas and environmental rules undermined demand from domestic coal-fired power plants. Millennium was originally a joint venture of Ambre Energy of Australia and the US miner Arch Coal. “We like our competitive position going forward in the Asian markets,” an Arch executive said in 2011. 

The market has changed. Arch is now trying to sell its Powder River Basin mines and has removed the word “coal” from its name. 

The Millennium project’s current owner, the mining company Lighthouse Resources, filed for bankruptcy protection in December. The company on Saturday relinquished the site to land owner Northwest Alloys, a subsidiary of the aluminium maker Alcoa. Alcoa said it would evaluate plans for the location, making no mention of coal.

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“About 10 years ago there were maybe a half-dozen major terminals proposed for the west coast because of some excitement about PRB coal. All those have fallen through,” said Matt Preston, research director for North American coal markets at Wood Mackenzie, a consultancy. 

US coal exports peaked at 125.7m short tons in 2012. In 2019 they had fallen to 93.7m short tons and the majority was metallurgical coal used in steelmaking, not thermal coal burnt by power plants to generate electricity, according to the US Energy Information Administration. In the first nine months of 2020 US coal exports were down 32 per cent on the year. 

Pacific coast ports are the closest and cheapest route to Asia for the Powder River Basin. The basin’s 16 mines produced 294.2m short tons of coal last year, or 42 per cent of US supply. 

Yet existing ports on the US west coast can only export about 13m tons a year, while a nearby terminal in Vancouver, British Columbia can handle another 33m tons, according to data from the National Mining Association. 

New port projects encountered strong opposition. A plan to export coal from Utah through Oakland, California, was blocked by the local government and its developer filed for bankruptcy late last year, IEEFA reported. 

The Trump’s administration weakened regulations on US coal plants, giving a boost to an industry that former president Barack Obama had hoped to wind down in order to cut harmful emissions that drive global warming © AFP/Getty Images

Washington state, led by the climate-activist governor Jay Inslee, denied Millennium a water-quality permit in 2017. Lighthouse Resources sued and was joined by the governments of Montana and Wyoming, which argued that Mr Inslee was unfairly restraining trade. 

“Without port access, the landlocked states of Wyoming and Montana are unable to access overseas markets for one of the states’ most important commodities and one of the biggest drivers of their economies,” the states said in their complaint to the US Supreme Court. “Washington is seeking to regulate conduct — the export and combustion of coal in foreign markets — that is wholly outside its borders.” The court is yet to rule in the case.

The collapse of the Millennium project comes as Asian thermal coal markets stage a rally driven by supply shortfalls in Colombia and a winter cold snap in east Asia. The price of high-energy Australian coal — the benchmark for the vast Asian market — almost doubled late last year to $90 a tonne, according to Argus Media. 

Yet seaborne coal prices were well above $100 a tonne when developers first proposed their export projects on the US west coast. The future of coal is in question as more countries pledge to shift to cleaner alternatives such as natural gas and solar power. 

“Korea, Japan, the Philippines, Vietnam, Egypt and Bangladesh are just a few of the countries that have changed their vision of the role of coal power generation in the future,” the International Energy Agency said in a recent electricity report.



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Copper hits record high with demand expected to rise sharply

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Copper prices hit a record high on Friday in the latest leg of a broad rally across commodity markets sparked by the reopening of major economies and booming demand for minerals needed for the green energy transition.

Copper, used in everything from electric vehicles to washing machines, rose as much as 1.2 per cent to $10,232 a tonne, surpassing its previous peak set in 2011 at the height of a previous commodities boom.

The price has more than doubled from its pandemic lows in March last year due to voracious demand from China, the biggest consumer of the metal, and also investors looking to bet on a big uptick in the global economy and protect their portfolios against potential for rising inflation.

Government stimulus packages and the shift towards electrification to meet the goals of the Paris agreement on climate change are expected to fuel further demand for the metal, which analysts and industry executives believe could hit $15,000 a tonne by 2025.

“Capacity utilisation rates of our customers are the highest in a decade and that’s before stimulus money both in Europe and the US has started to flow,” said Kostas Bintas, head of copper trading at Trafigura, one of the world’s biggest independent commodity traders. “That will be significant.”

The US and Europe were becoming significant factors in the consumption of copper for the first time in decades, he added. “Before, it’s effectively been a China-only story. That is changing fast.”

Concerns about the long-term supply of copper due to lack of investment by large miners has also pushed up prices. There are only a few large projects in a development, while most of the world’s easily produced copper has already been mined.

“The current pipeline of projects likely to start producing in the next few years represents only 2.3 per cent of forecast mine supply,” said Daniel Haynes, analyst at banking group ANZ. “This is well down on previous cycles, including 2010-13 when it reached 12 per cent.”

The upward march of other raw materials is showing no signs of abating. Steelmaking ingredient iron ore traded above $200 a tonne for the first time as China returned to work after the Labour Day holidays in early May. 

In spite of production cuts in Tangshan and Handan, two key steelmaking cities in China, analysts expect output to remain solid over the next couple of quarters. 

“Recent production cuts in Tangshan have boosted demand for higher-quality ore and prompted mills to build iron ore inventories as their margins are on the rise with steel supply being restricted,” said Erik Hedborg, a principal analyst at CRU Group.

“Iron ore producers are enjoying exceptionally high margins as around two-thirds of seaborne supply only require prices of $50 a tonne to break even.”

Elsewhere, tin on Thursday rose above $30,000 a tonne for the first time in a decade before easing. Tin is used to make solder — the substance that binds circuit boards and wiring — and is benefiting from strong demand from the electronics industry, which has been lifted by growing numbers of stay-at-home workers.

US wood prices continued to race higher ahead of the peak in the US homebuilding season in the summer with lumber futures rising to a record high above $1,600 per 1,000 board feet length, up from $330 this time last year.

Agricultural commodities also continued to rally as a result of a particularly dry season in Brazil, concerns about drought in the US and Chinese demand. Strong increases in food prices have started to affect global consumers. Corn rose to a more than eight-year high of $7.68 this week, while coffee has risen almost 10 per cent since the start of month, hitting a four-year high of $1.54 a pound this week.



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Wall Street stocks waver as investors await US jobs data

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Wall Street stock markets wavered, with tech losses dragging down some indices, but remained close to record highs ahead of US jobs data on Friday that could pile pressure on the Federal Reserve to rethink its ultra-supportive monetary policies.

The S&P 500 was up 0.2 per cent in the afternoon in New York, hovering slightly below its all-time high achieved late last month. The peak was reached following a long rally supported by the Fed and other central banks unleashing trillions of dollars into financial markets in pandemic emergency spending programmes.

The technology-heavy Nasdaq Composite, however, which is stacked with growth companies sensitive to changing interest rate expectations, was down 0.5 per cent by the afternoon in New York, the fifth straight losing session for the index.

The divergence of the two indices followed patterns from earlier this year, when investors sold out of growth companies over fears of rising rates and poured into more cyclical plays. That trade has been more muted recently but could be coming back, said Nick Frelinghuysen, a portfolio manager at Chilton Trust.

“It’s been a bit more ambiguous . . . in terms of what regime is leading this market higher, is it quality and growth or is it value and cyclicals?” Frelinghuysen said. “We’re in a little bit of a wait-and-see mode right now.”

The 10-year Treasury yield, which rose rapidly earlier this year amid inflation fears, declined 0.05 percentage points to 1.56 per cent on Thursday.

In Europe, the Stoxx 600 closed down 0.2 per cent, hovering just below its record high reached in mid-April.

With the US economy close to recovering losses incurred during coronavirus shutdowns, economists expect the US government to report on Friday that the nation’s employers created 1m new jobs in April. Investors will scrutinise the non-farm payrolls report for clues about possible next moves by the Fed, which has said it will continue with its $120bn a month of bond purchases until the labour market recovers.

Up to 1.5m jobs would “not be enough for the Fed to shift”, analysts at Standard Chartered said. “Between 1.5m and 2m, there is likely to be uncertainty on Fed perceptions.”

Central bankers worldwide had a strong “communications challenge” around the eventual withdrawal of emergency monetary support measures, said Roger Lee, head of UK equity strategy at Investec.

“If it is orderly, then you can expect a gentle continuation of this year’s stock market rotation” from lockdown beneficiaries such as technology shares into economically sensitive businesses such as oil producers and banks, Lee said. “If it is disorderly, it will be a case of ‘sell what you can’.”

On Thursday the Bank of England upgraded its growth forecasts for the UK economy but stopped short of following Canada in scaling back its asset purchases.

The BoE maintained the size of its quantitative easing programme at £895bn, while also keeping its main interest rate on hold at a record low of 0.1 per cent. The British central bank added that while its asset purchases “could now be slowed somewhat” after it became the dominant buyer of UK government debt last year, “this operational decision should not be interpreted as a change in the stance of monetary policy”.

Sterling slipped 0.1 per cent against the dollar to $1.389.

The dollar, as measured against a basket of trading partners’ currencies, weakened 0.4 per cent. The euro gained 0.4 per cent to $1.206.

Brent crude fell 1.1 per cent to $68.17 a barrel.



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Gensler raises concern about market influence of Citadel Securities

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Gary Gensler, new chair of the Securities and Exchange Commission, has expressed concern about the prominent role Citadel Securities and other big trading firms are playing in US equity markets, warning that “healthy competition” could be at risk.

In testimony released ahead of his appearance before the House financial services committee on Thursday, Gensler said he had directed his staff to look into whether policies were needed to deal with the small number of market makers that are taking a growing share of retail trading volume.

“One firm, Citadel Securities, has publicly stated that it executes about 47 per cent of all retail volume. In January, two firms executed more volume than all but one exchange, Nasdaq,” Gensler said.

“History and economics tell us that when markets are concentrated, those firms with the greatest market share tend to have the ability to profit from that concentration,” he said. “Market concentration can also lead to fragility, deter healthy competition, and limit innovation.”

Gensler is scheduled to appear at the third hearing into the explosive trading in GameStop and other so-called meme stocks in January.

Trading volumes in the US surged that month as retail investors flocked into markets, prompting brokers such as Robinhood to introduce trading restrictions that angered investors and drew the attention of lawmakers.

The market activity galvanised policymakers in Washington and investors. Lawmakers have focused much of their attention on “payment for order flow”, in which brokers such as Robinhood are paid to route orders to market makers like Citadel Securities and Virtu.

That practice has been a boon for brokers. It generated nearly $1bn for Robinhood, Charles Schwab and ETrade in the first quarter, according to Piper Sandler.

Gensler noted that other countries, including the UK and Canada, do not allow payment for order flow.

“Higher volumes of trades generate more payments for order flow,” he said. “This brings to mind a number of questions: do broker-dealers have inherent conflicts of interest? If so, are customers getting best execution in the context of that conflict?”

Gensler also said he had directed his staff to consider recommendations for greater disclosure on total return swaps, the derivatives used by the family office Archegos. The vehicle, run by the trader Bill Hwang, collapsed in March after several concentrated bets moved against the group, and banks have sustained more than $10bn of losses as a result.

Market watchdogs have expressed concerns that regulators had little or no view of the huge trades being made by Archegos.

“Whenever there are major market events, it’s a good idea to consider what risks they might have placed on the entire financial system, even when the system holds,” Gensler said.

“Issues of concentration, whether among market makers or brokers at the clearinghouse, may increase potential system-wide risks, should any single incumbent with significant size or market share fail.”



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