BECKLEY, W.Va. — Despite a number of economic challenges, the outlook for the domestic coal industry has been revised from negative to stable based on much needed price relief to coal producers.
Moody’s Investors Service said the revision was based on a combination of fourth quarter 2016 metallurgical coal prices and the increase of natural gas prices, which will provide much needed relief for the struggling coal sector.
“Although we do not view the recent price uptick in met coal as ultimately sustainable, we also are not expecting prices to return to the low levels seen in late 2015 and early 2016 — which were themselves a function of an oversupplied market and miners still working through production rationalizations,” said Anna Zubets-Anderson, a vice president and senior analyst at Moody’s.
However, the analysts warns, “even as U.S. metallurgical coal producers have significantly cut back production, they will continue to be disadvantaged by longer distance to the Asian markets, a strong U.S. dollar and higher position on the cost curve.”
Additionally, the rating agency expects the domestic thermal coal industry has experienced the bottom due to rising natural gas prices and rationalization of production, even as the Energy Information Association’s (EIA) anticipates a decline in coal consumption of 9 percent in 2016 due to Mercury and Air Toxics Standards implementation and only a modest recovery in 2017 due to growth in electric generation.
Moody’s also said the recent presidential election increased the uncertainty around the direction of government energy policies and predicts “domestic coal consumption will remain under pressure over the long term.”
Even if President-elect Trump withdraws from the Paris Agreement and decreases regulations on the coal industry, an anti-coal sentiment will continue to weigh heavily on investment in new domestic coal capacity, the report states.