COVID-19 adds to US coal malaise

Rising ESG-investment concerns further limit the likelihood of meaningful government assistance

Moody's sees a significant decline in US domestic thermal coal demand

Moody's sees a significant decline in US domestic thermal coal demand

"Coal consumption will be crushed in 2020 with the industry taking much of the hit from the drop in electricity demand following outbreaks of coronavirus," lead coal analyst Benjamin Nelson said in a response to Mining Journal.

Moody's maintains a negative industry outlook, forecasting US coal production will fall 25% in 2020, compounding impacts of generally weaker commodity prices for producers since 2018.

"We expect a sharp and sustained slowdown in economic activity will result in lower economic growth, reduced demand for electricity, and reduced demand for steel. As a result, the production of metallurgical coal, a key ingredient in the steelmaking process, will not offer the offset to declining thermal coal demand that it sometimes does," said Nelson, lead author of the agency's updated sector outlook.

US Energy Information Agency data shows coal demand from US power generation has halved since 2008, as coal-fired power plants are shut down and replaced by cheaper gas-fired and renewable energy. Most domestically produced steaming coal is consumed in the US.

US electric utilities accounting for about 80% of US thermal coal demand, consumed about 539Mt in 2019, down from about 1Bt in 2008. The total is expected to fall to 411Mt in 2020, according to the EIA. "We expect a decline of more than 150Mt will push consumption by power generators below 400Mt in 2020," said Nelson.

The analyst expects export pricing and volumes will remain under pressure, falling toward 50 million tons in 2020. Electricity demand around the world is dropping amid an industrial slowdown and macroeconomic downturn.

Costs involved in reaching markets such as China and India make exports less profitable, or unprofitable, when prices fall. Nelson points out export metallurgical coal prices have also dipped, with steelmakers increasingly under strain from weakness in end markets. In contrast to thermal, most US met coal is exported.

Despite seaborne met coal still selling within Moody's medium-term sensitivity range of US$110-170/metric ton (now at the lower end of the range), producers will not be immune to the recent financial disruption and market weakness. "Met coal consumption will continue to contract as most steel producers idled blast furnaces in early 2020 in response to the coronavirus outbreak and decreased capacity utilisation amid curtailed industrial activity," said Nelson.

He said increasing ESG concerns among lenders would make it more difficult for coal producers to maintain liquidity. "Coal producers have taken steps to strengthen liquidity but have not completed loan or bond deals in recent months."

ESG-related concerns also reduce the likelihood of significant assistance in the aftermath of the coronavirus pandemic, as the US government directs financing toward industries more likely to rebound as the crisis eases.


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