Although the US coal industry's 2014 earnings are expected to decline modestly as more lucrative contracts roll off and metallurgical coal prices remain low, the outlook for producers remains stable, Moody's Investors Service said in a report Wednesday.
"We expect production volumes to rise by 2% to 3% next year off the 2013 trough of a little over 1 billion st," Moody's Vice President-Senior Analyst Anna Zubets-Anderson said. "Coal's share of electricity generation will approach 40% through mid-2015, but thereafter will trend lower as coal plants retire and new investment turns to natural gas and renewable capacity."
Moody's added that Illinois Basin producers will continue to take market share from Central Appalachia, but both basins will face price pressure. Central Appalachian thermal producers like James River Coal will face the most challenges due to mine depletions, fuel substitution, coal plant retirements and high labor costs, Zubets-Anderson said.
Demand for coal from the Powder River Basin will remain more volatile than demand for coal from other regions, while increased supply will cap prices only marginally above the cost of production, she added. Among companies in the Powder River Basin, Cloud Peak Energy Resources is better able to withstand weak prices, while Arch Coal needs a healthy price recovery to stop burning cash.
And while demand and prices should be steady for Northern Appalachian coal through next year, beyond that plant retirements and competition from cheap natural gas will pose a threat.
"Export markets for US coal will remain weak in 2014," Zubets-Anderson said in a statement. "Met coal producers face a sluggish global steel industry and additional supplies coming online in Australia, while a surplus of thermal coal in Europe and Asia will limit price recovery in the seaborne markets."
