Demand for thermal coal in the US will remain in secular decline in the 2020s, regardless of the outcome of the Presidential elections early next month, driven by a combination of factors, including persistently low natural gas prices and increasing emphasis on renewably energy.

However, thermal coal producers would see an accelerated decline in demand under policies proposed by Democratic candidate Joseph Biden, Moody’s Investor Service said on Tuesday.

With “greening the economy” at the centre of growth for the Democratic platform, there would be “substantial negative implications” for the thermal coal industry, with companies such as Alliance Resource Operating Partners, Arch Resources, Consol Energy and Peabody Energy.

Biden aims to achieve carbon-free electricity by 2035, with plans for a technology-neutral energy efficiency and clean energy electricity standard, accompanied by clean energy tax credits meant to incentivise utilities and grid operators to improve energy efficiencies and generate electricity with renewables.

This, Moody’s said, would hit coal-fired power plants harder and more quickly than other fossil fuels. Unregulated power generators, in particular, would be directly exposed to the market effects of new environmental regulations, because they would be unable to recover increased compliance costs from rate payers, leading to a reduction of coal-fired units in the context of a broader set of positive developments, the group noted.

President Donald Trump, meanwhile, has pursued a policy agenda considered favourable to the coal industry that had helped preserve some demand for thermal coal, but even if he were to continue to promote a policy agenda that was favourable to the coal industry, efforts to this point had been insufficient to reverse the decline in demand that started in the late 2000s.

Domestic demand for thermal coal in the United States has declined significantly over the past few years with more retirements of coal-fired power plants expected in the near-to-medium term and an export market that is insufficient to pick up the slack even in an improving price environment scenario.

Moody’s is forecasting an improvement in demand in 2021, on the back of a modest improvement in business conditions, but this would be insufficient to alleviate pressure on US thermal coal producers.

The ratings agency said that most US coal companies, including all thermal coal producers, were downgraded or faced another negative rating action in 2020.

“Most coal companies still have negative outlooks in response to cash burn, weakened liquidity, and significant uncertainties surrounding the prospect of a modest recovery in domestic and international coal prices in 2021. While we expect economic recovery in 2021 and some recovery in the coal burn as well, coal inventories are high. This will limit the extent to which economic recovery results in greater coal purchases as would be the case in a normal inventory environment. Thermal coal producers are also vulnerable to short-term market weakness, as well as longer-term debt capacity issues, such as a scenario in which the coal industry's decline gathers pace and therefore companies' reclamation-related spending must also accelerate.”