Americas once-formidable coal industry is falling apart. As companies chose instead to focus on the boom shale and oil production seen in the Permian Basin, coal companies have been struggling to raise funds and even maintain a profit.
Now one of the world’s top credit agencies has cut its expectations for the sector as a whole. Moody’s announced on Wednesday that is had lowered its 12-18-month outlook for North America’s coal industry, dropping it from a “stable” rating to a “negative” amidst declining profitability, falling export prices and stagnating demand from utilities.
Over the next 12 months, Moody’s expects the sector’s earnings before interest, taxes, depreciation, and amortization (EBITDA) to fall by more than 3 percent. One of the biggest reasons for this comes from the decrease in thermal coal export prices as Europe, a main buyer of coal, has seen strict environmental measures come through that would discourage the use of coal.
In the mid-term, Moody’s expected price range for export coal remains the same, between $60 and $90 per metric tonne for Newcastle thermal coal and $110 to $117/metric ton for higher-quality metallurgical coal.
In the long-term, the U.S. coal sector could end up seeing a substantial decline in volume over the coming decade, as economic, environmental, and social factors all come together to push energy demand to more cleaner alternatives. Already major energy companies have promised to make renewable energy sources like solar a major portion of their total output in the coming decades.
“The combination of a now-weakened export market and significant retirement of coal-fired power plants in 2018 is creating an oversupplied domestic market and could drive prices lower,” read a report from the company. “Coal producers’ profitability will worsen significantly over the next 12 to 18 months, driven by a substantive decrease in export prices for thermal coal, particularly in Europe, combined with meaningful open contract positions for some producers in 2020,” added Benjamin Nelson, a Moody’s VP-Senior Credit Officer.
Now certainly isn’t the time to be investing in coal stocks, that seems to be certain. The decline of the coal industry has become somewhat of a political hot topic for the Trump administration, as the President has promised to help struggling workers in the sector. However, as the industry continues to suffer, many voters in these states could turn against President Trump in the upcoming election.
At the same time, the political cost that comes from the decline of the coal industry and its supports is counterbalanced by the surging oil industry in the Permian Basin, which has been more than happy with President Trumps move to make America an oil-exporting nation in the future. Oil output has reached new records as supplies continue to increase.
While the coal industry has begun to fight a public image campaign to clean itself of its “dirty” perception, it’s unclear how successful these efforts will be. According to the Financial Times, a new campaign planned to raise awareness of a new method of storing CO2 underground rather then emitting it in the air could be a game changer if successful. However, it’s uncertain how successful this could possibly be in the long run.
