US coal producers will rely more heavily on export markets in coming years as domestic demand from power generation continues to fall, Moody’s Investors Service said.
The ratings agency expects coal demand from US utilities to erode significantly between 2020-2030, driving contraction in the industry and increasing producers’ reliance on exports. Planned coal-fired power plant closures, plus unannounced closures of older units, could reduce coal’s share of total US power generation to 11pc by 2030, Moody’s said.
“This drop would represent a substantial reduction from today’s mid-20pc contribution to power generation, and the continuation of an ongoing secular decline in thermal coal demand,” Moody’s said.
Coal accounted for about 50pc of total generation in the US in 2008.
Powder River basin coal producers are likely to be hardest hit by the lost demand, especially in the 8,400 Btu/lb market, Moody’s said. Central Appalachia producers also could struggle with profit margins. Northern Appalachia and Illinois basin producers could fare better because of lower cash costs and locations close to coal-fired power plants that are not expected to close.
Utilities consumed about 84pc of the 756mn short tons (685.8mn metric tonnes) of coal produced in the US last year.
Producers are unlikely to replace all of the expected continued loss in utility demand. While US exports likely will account for a larger share of the industry, its profitability is reliant on high prices because of the high cost of delivering coal to seaborne markets, Moody’s said.
“Most exporters of thermal and (metallurgical) coal do not have the cost structures to compete effectively through full price-cycles, as in the thermal export market in the second half of 2019,” Moody’s said.
US producers will be challenged by increased export volumes from Australia, Russia and Indonesia, which are located closer to the growth markets, limiting the overall growth in US exports, Moody’s said.
The ratings agency expects exports to fall this year and in 2020 but reach 25pc of total thermal and metallurgical coal production by 2025. International shipments accounted for about 15pc of US production last year and 3-7pc between 2000 -2010.
Moody’s maintained a stable outlook for the coal industry for the next 12-18 months, citing expectations of “strong” cash margins for metallurgical coal production. It did not provide a longer-term outlook rating.
- On July 12, 2019