Faced with the potential of a long term negative domestic growth scenario, both metallurgical and increasingly steam coal producers are rapidly shifting their assets to produce into a robust export market. As Wall Street plunks its money down, NAPP and CAPP producers CONSOL Energy, Patriot Coal and a host of other companies are responding. While railroads and port owners ramp up to handle the extra volume, they are also debating how sustainable the export market will be long term—and how much of their fixed assets and capital they need to support it. As U.S. utilities reduce their dependence on coal-fired generation, to sustain themselves—let alone grow—coal producers are racing to tap into overseas markets and invest in finding ways to move more of their coal off-shore. Few companies are expanding their thermal production, tiiough many are replacing existing mined out tonnage. Lately it seems that any producer that can is shifting capital into whatever metallurgical or PCI coal reserves they can access. Though exports may be only 8% of U.S. coal demand, it is the most profitable market for producers. While metallurgical coal enjoys the largest profit margins, exports of high Btu Illinois Basin and increasingly Western Bituminous coals are also bringing in impressive yields. As a result, "the seaborne markets have become the tail that wags the dog for investors and capital markets," said Paul Forward, managing director at Stifel Nicolaus, in his presentation U.S. Coal: Is a Strong Export Market Enough?
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