Moody’s changes North American coal industry outlook to ‘negative’
Persistently weak demand for metallurgical (met) coal would lead to lower earnings over the next 12 to 18 months, and along with near-term challenges in the thermal coal sector, would exacerbate the industry’s long-term, secular decline.
“We expect industry earnings to drop 6% to 8% over the next year or so. All North American miners will be challenged by current conditions, but lower-rated US met coal producers including Arch Coal, Alpha Natural Resources, Patriot Coal and Walter Energy will be the most vulnerable,” VP and senior analyst Anna Zubets-Anderson said in the report titled ‘Changing Outlook to Negative as Earnings Come Under Added Pressure.’
The benchmark price for high-quality met coal settled at $117/t in the first quarter of this year, slightly less than in the last three quarters of 2014 and about 20% less than in 2014’s first quarter. “At current prices, as much as half of global production is uneconomic and further production cuts will be necessary to bring the markets back into balance,” Zubets-Anderson said.
Despite some met coal producers scaling-back output, excess supply continued to pressure prices. At the same time, the strong US dollar continued to push US producers further up on the global cost curve, to the benefit of Australian and Canadian miners.
And lower Chinese demand and continuing weak steel production globally would limit growth in the seaborne met coal market in 2015. China accounts for about a quarter of the roughly 300-million tonne market for seaborne met coal. In 2014, global steel output growth slowed to 1.2%, and Chinese steel production to 0.9%.
Meanwhile, the US thermal coal industry remained challenged by weak natural gas prices, as well as the implementation of federal mercury and air toxic standards over the next year. Henry Hub natural gas prices tracked below $3/million British thermal units early in the year, and absent a rapid recovery, some coal-to-gas switching was likely in the next several months, Moody’s said.
EDITED BY: CREAMER MEDIA REPORTER