US coal industry to decline even further in 2017 — IEEFA

Despite a spike in coal prices last year and promises of better times ahead for the sector by President-elect Donald Trump, the US coal industry will continue to decline this year, though at a slower pace than in 2016, a new study shows.

According to the Institute for Energy Economics and Financial Analysis (IEEFA), while US coal producers stand to gain limited market share in day-to-day competition due to a relative increase in the price of natural gas, its main competitor, any such gains will be marginal, it said in a report published Thursday.

IEEFA sees production declining by as much as 40 million tonnes this year and prices failing to increase enough to benefit shareholder or stimulate new investment.

The authors, IEEFA Director of Finance Tom Sanzillo and Director of Resource Planning Analysis David Schlissel, believe coal will remain at the mercy of market economics. As such, they see production declining by as much as 40 million tonnes this year and prices failing to increase enough to benefit shareholder or stimulate new investment.

Prices for thermal coal, which climbed up to $110 a tonne last year, have been falling in the last two weeks, trading close to $82 a tonne. Meanwhile, coking coal, which hit more than $300 a tonne in late 2016, is also down almost 40% at roughly $176 a tonne.

The analysts also predict little or no gain from regulatory relief as capital continues its flight from coal, as well as increasingly dim employment prospects.

They argue that, despite the hopes of many, the current power shift in Washington will have little impact on the industry.

“Our outlook starts by acknowledging that the U.S. coal industry begins 2017 with better optics than it had a year ago,” they wrote in a related blog post. “A new administration comes to power in Washington this week promising regulatory relief and a coal resurgence, major industry players are emerging from bankruptcy, and a recent spike has occurred in global prices.”

US coal industry to decline even further in 2017 — IEEFA

While these optics are positive on their face, IEEFA sees the industry as a sector saddled with fundamental problems.

One of main issues dragging the industry down, the authors say, is that too many companies are still mining too much coal for too few customers.

The report concludes with yet another gloomy note, arguing that the long-term outlook for the industry in every coal-mining region from now through 2050 is “poor” and predicts that more coal-fired power plants will close while utilities will continue to allocate capital away from coal.