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Stable outlook for US coal

World Coal,

The outlook for the US coal industry remains stable, according to the latest report from Moody’s Investors Service, ‘US Coal Industry Faces Steady but Weak 2014, With No Relief in Sight’.

General outlook

US coal industry conditions have stabilised at very weak levels by historical standards, but overall Moody’s expects a modest decline in earnings next year, as higher priced contracts continue to roll off and prices for metallurgical coal remain low.

Moody’s expects production volumes to rise by between 2 and 3% in 2014, up from the 2013 trough of 1008 million short t. Coal’s share of electricity generation will reach approximately 40% through mid-2015, but trends are predicted to fall over then next 10 years as coal plants are retired and new investment is made in natural gas and renewables. The advantages of natural gas, in terms of volume, low cost and environmental benefits, pose the biggest challenge to US coal for the foreseeable future.

Domestic market

Moody’s expects no real growth in domestic coal consumption for the medium term, despite EIA expectations that total electric generation will grow by approximately 10% over the next decade. The report predicts that alternative power sources will capture the growth in electric generation, reducing coal’s share to approximately 35% by 2025, down from 39% this year. Coal consumption will remain relatively level, as larger coal-fired power plants increase production, which will ultimately compensate for retired coal capacity.

Illinois Basin

Coal producers in the Illinois Basin will continue to take market share from Central Appalachia, however both areas will face price pressure. Foresight Energy will experience growth in volumes and resilient margins, scooping an advantage over other higher cost Illinois Basin producers such as Armstrong Energy.

Thermal coal producers in the Appalachia area such as James River Coal will continue to face most challenges. The decline of activity in Central Appalachia stems primarily from mine depletions, fuel substitution at power plant, coal plant retirements and high labour costs.

Powder River Basin

Increased supply will cap prices for coal from Powder River Basin only marginally above the cost of production. Cloud Peak Energy Resources will be able to withstand weak prices thanks to its low cost structure and conservative balance sheet, however Arch Coal will need a healthy price recovery to stop burning cash.

Northern Appalachia

Coal from this region should enjoy steady demand and margins throughout next year. However, plant retirements and cheaper natural gas options pose a threat in the medium term. CONSOL Energy’s diversification into natural gas will give the company an advantage over other producers in the Northern Appalachia region.

Export markets

Export markets for US coal will remain weak next year. Metallurgical coal producers including Walter Energy and Alpha Natural Resources are facing a sluggish steel industry, with additional supplies coming online in Australia throughout 2014. Thermal coal will remain oversupplied in both Europe and Asia, which will limit price recovery in the seaborne markets.


Moody’s suggested that next year’s outlook for the US coal industry could be changed to positive if:

  • Coal’s share of electricity generation rises about 41%
  • Metallurgical coal prices increase above US$ 175
  • Coal inventories at utilities decline below 165 million short t.

On the other hand, the outlook could change to negative if:

  • Coal makes up less than 38% of electricity generation
  • Metallurgical coal prices persist below US$ 150
  • Utilities’ coal inventories rise above 185 million t.

Edited from various sources by Katie Woodward

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