This summary of an recent article (September 26, 2014) published by the St. Louis Post Dispatch is one of the latest and finest discussions on the future of coal in America and more to the point, coal in mid America. Major ideas, facts and lines of thought have been summarized below.
COAL COMPANIES HAVING TOUGH YEAR SO FAR
The article was written by Jacob Barker, the business reporter at the Post-Dispatch newspaper.
It was supposed to be a better year for U.S. coal producers.
(1) 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.
(2) Coal companies have seen their stock shares drop this year due to widening weakling of the coal market demand. On September 26, 2013, Peabody Coal stock was trading at $17.85 a share. On the same day in 2014, the stock price had fallen to $12.29 a share. Arch Coal sold at $4.53 on September 2013. A year later, in 2014, the stock price was $2.16 a share. Foresight Coal was selling its stock on September 26, 2013 for $20.00 a share. Twelve months later the stock had dropped to $17.37.
(3) Though environmental rules are making new coal plants prohibitively expensive and leading to the closure of some older plants, it's really market conditions -- oversupply and the advent of cheap natural gas -- that are hitting coal miners hardest, said Ken Colburn, a senior associate at the Regulatory Assistance Project who specializes in air regulations.
"I don't 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,"
(4) Wall Street bank Goldman Sachs released a report predicting a fall of thermal coal prices. The bank also wasn't optimistic that long depressed prices for metallurgical coal, used in steelmaking, would improve.
"They typically derive most of their profits from metallurgical coal," said Kirk McDonald, an analyst with Clayton-based Argent Capital Management who follows materials and energy. "Especially with what is happening in China, domestically there, they're producing less steel now."
(5) 2014 Weather Impact on Coal
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.
The mild summer let natural gas producers replenish supplies, while utilities eschewed coal because of rail delivery problems.
(6) China Market Impact
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't affect Chinese power plants and that many imports already met the standards, markets punished coal stocks nonetheless.
(7) US Coal Companies lose market value
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.
Creve Coeur-based Arch Coal's share price is down 31 percent over the last month.
The negative sentiment also has hit the company's debt. On Thursday, the price of Arch Coal's 7 percent bonds that mature in 2019 tumbled to 53.75 cents on the dollar, its lowest price ever, according to Bloomberg News.
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.
As of Thursday, shares of the world's largest private coal producer, St. Louis-based Peabody Energy, had fallen 22 percent in a month. That followed its removal from the Standard & Poor's 500 index of large companies and a downgrade to "sell" from Goldman this month.
(8) "Railroad transportation continues to be a challenge, said Vic Svec Peabody Coal spokesman, though conditions are improving."
That has slowed the market's 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.
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.
(9) The U.S. Energy Information Administration, predicts coal consumption will fall 2.6 percent next year. 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 "a domino effect" in the seaborne markets, Morningstar's Kristoffer Inton said.
(10) 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.
"Ultimately, U.S. coal, which was really a swing supplier anyway, is most likely to be forced out of the seaborne market," Inton said.
Arch, however, said most of China's coal imports already meet the quality guidelines it announced last week. Reuters reported last week that power plants may also be exempted.
"Europe 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," Arch Coal spokeswoman Logan Bonacorsi said.
Peabody, with its Australia reserves, may be able to use India to cushion slowing Chinese demand, Inton said.
Peabody's Svec said India's power plants are along the coast, where they're easily supplied, and the country's new prime minister has pledged to improve electric reliability.
"Their utilities are at critically low supplies of coal," Svec said. "We would expect India to be perhaps the fastest coal-importing nation over the next several years."
Jacob Barker is a business reporter at the Post-Dispatch. Follow him on Twitter @jacobbarker and the Business section @postdispatchbiz.