{"id":3806,"date":"2014-09-26T09:56:29","date_gmt":"2014-09-26T15:56:29","guid":{"rendered":"http:\/\/valleywatch.net\/?p=3806"},"modified":"2014-09-26T09:56:29","modified_gmt":"2014-09-26T15:56:29","slug":"a-bad-year-for-coal-but-not-because-of-government-regs","status":"publish","type":"post","link":"http:\/\/valleywatch.net\/?p=3806","title":{"rendered":"A bad year for coal but not because of government regs"},"content":{"rendered":"

\"Larger<\/a>September 26, 2014 – by Jacob Barker in the St. Louis Post-Dispatch<\/em><\/a><\/strong><\/p>\n

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It was supposed to be a better year for U.S. coal producers.<\/p>\n

But railroad congestion, a mild summer and indications that coal prices have yet to hit bottom have all conspired against the fuel, while cheap and plentiful natural gas continues to put pressure on the industry in the U.S.<\/p>\n

U.S. coal producers have seen their share prices hit especially hard in the last several months. Though environmental rules are making new coal plants prohibitively expensive and leading to the closure of some older plants, it\u2019s really market conditions \u2014 oversupply and the advent of cheap natural gas \u2014 that are hitting coal miners hardest, said Ken Colburn, a senior associate at the\u00a0Regulatory Assistance Project<\/a>\u00a0who specializes in air regulations.<\/p>\n

\u201cI don\u2019t think this is an easy cakewalk necessarily, but nothing the (Environmental Protection Agency) does will lead to the kind of impact on coal as a fuel that the market is having,\u201d<\/p>\n

\"Huge<\/a>

Huge mining machines called draglines are used to scoop up more than 150 cubic yards of earth with each pass. Strip mining is one of the most destructive things that man has done to the earth. Photo \u00a9 2010 John Blair.<\/p><\/div>\n

Colburn said. \u201cI think the EPA is probably enjoying a scenario where the market is doing a lot of its work for it in terms of its concerns about coal-based emissions.\u201d<\/p>\n

Influential investment bank Goldman Sachs released a report last week predicting a fall of thermal coal prices. The bank also wasn\u2019t optimistic that long depressed prices for metallurgical coal, used in steelmaking, would improve.<\/p>\n

\u201cThey typically derive most of their profits from metallurgical coal,\u201d said Kirk McDonald, an analyst with Clayton-based Argent Capital Management who follows materials and energy. \u201cEspecially with what is happening in China, domestically there, they\u2019re producing less steel now.\u201d<\/p>\n

The Goldman report highlighted the continued concerns about the industry, said Kristoffer Inton, an analyst with Morningstar.<\/p>\n

GREAT EXPECTATIONS<\/strong><\/p>\n

Early this year, conventional wisdom said the industry would see a reprieve due to an exceptionally cold winter that led to more coal and electricity usage, drawing down utility stockpiles. Instead, it was so cold that some railroads were damaged, compounding the already strained network that now carries fuels competing with coal: shale oil and gas.<\/p>\n

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The mild summer let natural gas producers replenish supplies, while utilities eschewed coal because of rail delivery problems, Inton said.<\/p>\n

Then China announced last week that it would ban imports of dirty coal, putting further pressure on the global coal market. While some reports suggest it won\u2019t affect Chinese power plants and that many imports already met the standards, markets punished coal stocks nonetheless.<\/p>\n

\u201cIt\u2019s been a string of bad luck,\u201d he said. \u201cYou add up all these factors, and it\u2019s just been a difficult year for the coal guys so far.\u201d<\/p>\n

The Stowe Global Coal Index of coal and coal-related stocks has declined 12.7 percent this year, with most of that lost coming over the past month.<\/p>\n

Creve Coeur-based Arch Coal\u2019s share price is down 31 percent over the last month.<\/p>\n

The negative sentiment also has hit the company\u2019s debt. On Thursday, the price of Arch Coal\u2019s 7 percent bonds that mature in 2019 tumbled to 53.75 cents on the dollar, its lowest price ever, according to Bloomberg News.<\/p>\n

Newly public Foresight Energy, which focuses on Illinois Basin coal and is headquartered in St. Louis, closed on Thursday at $17.37, down 13 percent from its June initial public offering price of $20 and its lowest price since going public.<\/strong><\/p>\n

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One of the newest coal docks on the Ohio River. Foresight Energy built this one in 2011 to export coal to world markets from the Illinois Basin. \u00a9 2011 BlairPhotoEVV<\/p><\/div>\n

As of Thursday, shares of the world\u2019s largest private coal producer, St. Louis-based Peabody Energy, had fallen 22 percent in a month. That followed its removal from the Standard & Poor\u2019s 500 index of large companies and a downgrade to \u201csell\u201d from Goldman this month.<\/p>\n

Peabody emphasized its high-quality Australian reserves will still be able to compete in China despite the country\u2019s ban of the dirtiest coal varieties.<\/p>\n

It says metallurgical coal supplies should fall after coal companies collectively announced reductions of 25 million to 30 million tons this year, which represents 10 percent of the seaborne supply. Domestically, Peabody is inking contracts for its western coal at \u201cmaterially higher levels than published indices,\u201d according to a market commentary it released last week.<\/p>\n

\u201cCoal, like any bulk commodity, is a classically cyclical industry, and we\u2019re now a couple years into a tough part of the cycle where supply has been plentiful,\u201d Peabody spokesman Vic Svec said. \u201cThe good news is that demand remains strong globally.\u201d<\/p>\n

The company released a bit of good news that investors seemed to cheer Tuesday, announcing it was raising its outlook for earnings before interest taxes, depreciation and amortization in the third quarter to $190 million to $210 million, above its previous range of $150 million to $200 million.<\/p>\n

\u201cOur operations are performing well as we experienced higher-than-expected results from the Western United States, improved performance from Australian metallurgical coal mines and continued cost reductions across the platform,\u201d Peabody CEO Greg Boyce said in a statement.<\/p>\n

TRANSPORTATION ISSUES<\/strong><\/p>\n

Railroad transportation continues to be a challenge, said Svec, though conditions are improving.<\/p>\n

That has slowed the market\u2019s recovery. Utilities are at a nine-year low of coal reserves from the cleaner-burning Powder River Basin, he said, but rail issues make them hesitant to buy more.<\/p>\n

\u201cWhile utilities are relatively low on supplies they\u2019re not bidding into a market for coal they can\u2019t get delivered,\u201d he said.<\/p>\n

Utilities should have to replenish some of their coal, but the fuel will continue to compete with new commodities like shale oil and gas for room on the rails.<\/p>\n

The railroads are making investments to fix capacity constraints, and Peabody expects \u201ccontinued demand growth in the United States and globally,\u201d Svec said.<\/p>\n

The U.S.\u00a0Energy Information Administration<\/a>, on the other hand, predicts coal consumption will fall 2.6 percent next year.<\/p>\n

Meanwhile, China is finishing a rail network that will allow it to use its own coal reserves. That, and any moves that curb imports, could lead to \u201ca domino effect\u201d in the seaborne markets, Morningstar\u2019s Inton said.<\/p>\n

Australia and Indonesian coal producers will pivot to India and South Africa, and their suppliers will pivot elsewhere in the global seaborne market. That could hurt U.S. producers like Arch, which hopes to nearly triple its exports to 30 million tons by 2020, according to an investor presentation.<\/p>\n

\u201cUltimately, U.S. coal, which was really a swing supplier anyway, is most likely to be forced out of the seaborne market,\u201d Inton said.<\/p>\n

Arch, however, said most of China\u2019s coal imports already meet the quality guidelines it announced last week. Reuters reported last week that power plants may also be exempted.<\/p>\n

\u201cEurope and the Americas, as well as Japan and South Korea, are more natural markets for U.S. thermal coals, but actions taken by China can have impacts on the seaborne marketplace,\u201d Arch Coal spokeswoman Logan Bonacorsi said.<\/p>\n

Peabody, with its Australia reserves, may be able to use India to cushion slowing Chinese demand, Inton said.<\/p>\n

Peabody\u2019s Svec said India\u2019s power plants are along the coast, where they\u2019re easily supplied, and the country\u2019s new prime minister has pledged to improve electric reliability.<\/p>\n

\u201cTheir utilities are at critically low supplies of coal,\u201d Svec said. \u201cWe would expect India to be perhaps the fastest coal-importing nation over the next several years.\u201d<\/p>\n<\/div>\n

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Jacob Barker is a business reporter at the Post-Dispatch. Follow him on Twitter\u00a0@jacobbarker<\/a><\/span><\/em>\u00a0<\/span><\/em><\/span>and the Business section<\/span><\/em>\u00a0<\/span><\/em><\/span>@postdispatchbiz<\/a>.<\/span><\/em><\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n

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September 26, 2014 – by Jacob Barker in the St. Louis Post-Dispatch It was supposed to be a better year for U.S. coal producers. But railroad congestion, a mild summer and indications that coal prices have yet to hit bottom … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[315,307,311,314,313,52,316,310,317,306,312,318,305,308,309],"class_list":["post-3806","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-aci","tag-arch-coal","tag-argent-capital-management","tag-btu","tag-coal-industry","tag-energy","tag-felp","tag-ken-colburn","tag-kirk-mcdonald","tag-kristoffer-inton","tag-logan-bonacorsi","tag-morningstar","tag-peabody-energy","tag-powder-river-basin","tag-vic-svec"],"_links":{"self":[{"href":"http:\/\/valleywatch.net\/index.php?rest_route=\/wp\/v2\/posts\/3806","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/valleywatch.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/valleywatch.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/valleywatch.net\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/valleywatch.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=3806"}],"version-history":[{"count":1,"href":"http:\/\/valleywatch.net\/index.php?rest_route=\/wp\/v2\/posts\/3806\/revisions"}],"predecessor-version":[{"id":3808,"href":"http:\/\/valleywatch.net\/index.php?rest_route=\/wp\/v2\/posts\/3806\/revisions\/3808"}],"wp:attachment":[{"href":"http:\/\/valleywatch.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=3806"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/valleywatch.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=3806"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/valleywatch.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=3806"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}