US coal industry needs to consolidate – Moody’s analyst

11th August 2020 By: Mariaan Webb - Creamer Media Senior Deputy Editor Online

Characterised by ongoing decline in demand, combined with near-term erosion of financial strength driven by the adverse economic impact of coronavirus, the US coal industry is in need of consolidation.

This is the view of Moody’s lead coal analyst Ben Nelson, who said that the group’s concerns about competitive issues in the US coal market were increasing.

“Most coal producers were heavily contracted in 2020 and had significant open tons in 2021, setting the stage for continued depressed pricing in the absence of further rationalisation of mining assets across the industry or substantive consolidation.

“Our forecast for natural gas prices to remain low compounds the issue because it suggests that demand for thermal coal will remain well below 2019 levels in 2021,” he said in a report issued on Alliance Resource Partners’ recently released second-quarter results.

Alliance Resources on July 27 reported a net loss attributable to shareholders of $46.7-million, compared with net income of $58.1-million for the quarter ended June 30, 2019. The decrease in net income attributable was attributed to the company’s decision to temporarily cease coal production at five of its seven mining complexes at the beginning of the 2020 quarter in response to the impacts of the Covid-19 pandemic and coal market deterioration.

Production days were cut in half compared with the quarter ended March 31, as the company gradually resumed production during the second quarter.

Chairperson, president and CEO Joseph Craft said that Alliance had expected the energy demand destruction caused by the Covid-19 pandemic to negatively impact its results for the quarter under review.

"For the first half of 2020 coal-fired generation in the eastern US declined 33% compared with the same time period in 2019. Demand for oil and natural gas also fell precipitously, driving commodity prices lower and leading operators to curtail production.”

As a result, consolidated segment adjusted earnings before interest, taxes, depreciation and amortisation for the second quarter were $62.1-million compared with $165.3-million in the June 2019 quarter and $111.7-million in the sequential quarter.

“While the pandemic continues to create uncertainty in the global economy and suppress energy demand, our customers have indicated their intention to take all tons contracted for this year."