US regulators to block Peabody, Arch Coal JV

Peabody’s North Antelope Rochelle Mine (NARM). (Image courtesy of Peabody Energy)

The US Federal Trade Commission (FTC) has rejected Peabody Energy and Arch Coal’s plans to combine their operations in Wyoming and Colorado, saying it would limit competition and raise prices.

The joint venture, announced by the country’s two largest coal miners last year, would run seven mines in the Powder River Basin (PRB), where Peabody and Arch Coal accounted for over 65% of all the coal mined there in 2018.

The FTC has requested an administrative trial and, in the meantime, a temporary restraining order and preliminary injunction for the deal, which could generate $120 million in annual cost savings for the companies over a decade.

The two largest coal miners in the US intend to challenge the FTC’s decision in the coming months

“Whatever the product, the antitrust laws protect customers from mergers that lead to higher prices,” Ian Conner, director of the FTC’s Bureau of Competition, said in the statement. “This joint venture would eliminate the substantial head-to-head competition between the two largest coal miners in the United States, and that loss of competition would likely raise coal prices to power-generating utilities that provide electricity to millions of Americans.”

Peabody and Arch Coal replied they intend to challenge the FTC’s decision in the coming months, adding they will continue to pursue the JV.

“We have provided tremendous amounts of evidence to the FTC during an extensive review, fully demonstrating that coal … faces intense competition from natural gas and other alternate fuels,” Peabody chief executive officer, Glenn Kellow, said in a separate statement.

The two companies believe coal prices will bottom out in the first half of 2020 before rising in the second half as production declines and global consumption gains.

The International Energy Agency is anticipating a steady increase in demand for the fossil fuel in the next five years, as growing demand for electricity in developing countries outpaces a shift to cleaner sources of electricity in industrialized nations.

Weak fundamentals

Moody’s lead coal analyst, Benjamin Nelson, said that regardless of whether or not the venture can go ahead, business conditions for coal producers in the PRB will remain extremely challenging.

Nelson cited among the reasons for the bleak outlook an “ongoing secular decline in the demand for thermal coal, low natural gas prices encouraging switching in the near-to-medium term and far fewer opportunities to export coal compared to other coal basins in part due to social opposition in the Pacific Northwest.”

US government data released in early February show that production in the country’s top coal- region fell almost 14% in the last three months of 2019 to the lowest in over two decades.

The weak quarter capped a tumultuous year of mine shutdowns and bankruptcies in the Basin, including Blackhawk Mining, Blackjewel, Cambrian Holding Co., Cloud Peak Energy and New Trinity Coal. Two other miners, Mission Coal and Westmoreland Coal, went bust in October 2018.