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North American coal outlook remains stable on flat earnings, says Moody's

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World Coal,

The outlook for the North American coal industry remains stable on expectations for flat to slightly lower earnings through mid-2020, Moody's Investors Service says in a new report. Prices will remain volatile for metallurgical coal, but should stay favorable over the next 12 - 18 months, helping to offset falling volumes in thermal coal.

"Our stable outlook for North American coal miners reflects our expectations for flat to marginally lower earnings over the next year or so," said Benjamin Nelson, a Moody's VP-Senior Credit Officer. "Ongoing secular decline in the demand for thermal coal remains the principal challenge facing the industry today."

Conditions for thermal coal producers vary significantly among US coal basins, added Nelson. Companies operating in the Powder River Basin in the west are highly vulnerable to falling demand, given their distance from utility customers, utilities switching from coal to natural gas, and social opposition to exports. Meanwhile, conditions in Northern Appalachia and the Illinois Basin have held up comparatively well with stronger pricing and better ability to export.

The prospects for producers of metallurgical coal used in steelmaking are more favourable, Moody's says, though risks are rising. Prices are overall higher than they were a few years ago, but Contura Energy, Inc., Peabody Energy Corporation and Murray Energy Corporation have all picked up new capacity through mergers and acquisitions, while CONSOL Energy Inc., Contura Energy Inc. and Warrior Met Coal, Inc. may undertake new mining projects. Among these companies, only Peabody is diversified with operations outside North America, while China continues to be a significant influence on the seaborne market, and therefore a catalyst for price volatility.

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