May 11, 2020 Read More →

Alliance CEO Craft sees need for consolidation in U.S. coal industry

S&P Global Market Intelligence ($):

The U.S. coal industry “needs” to consolidate in the face of difficult market conditions and sinking coal demand because of the coronavirus pandemic, Alliance Resource Partners LP CEO Joe Craft said on a May 8 earnings call.

“Consolidation is needed in the coal space, and we’re a consolidator,” Craft said, commenting on options available to the Oklahoma-based coal producer to survive the uncertainty in the U.S. economy and among fossil fuel industries in particular. “Nothing [is] currently being done but it needs to happen,” he said. “Whether it does or not, I can’t predict. But that needs to happen. And we are a willing participant in that.”

Craft did not specify transactions that could occur in the future. In prepared remarks at the beginning of the call, he said the company believes 2020 “will provide a new foundation for future growth of our partnership” and that “we are committed to continuing this strategy.”

The drop in electricity demand created by stay-at-home orders and other social distancing efforts in the U.S. appears set to accelerate the decline of the coal industry as energy markets fundamentally transform in the wake of the crisis. Though the pandemic has yet to push U.S.-based coal-fired power plants toward earlier retirements, a Trump administration official recently told virtual attendees of a fuel buyers conference the industry may perform worse than the U.S. government’s already-grim predictions and that coal plants may retire early.

Sustainability-focused think tank Institute for Energy Economics and Financial Analysis concluded in a March report the U.S. coal sector would face pressure to consolidate, with the pandemic expected to exacerbate negative market conditions. Current coal production capacity in the U.S. is “unsustainable,” the think tank stated, and 2020 “will very likely see the beginning of a long-overdue rethinking of production capacity in the U.S.”

For Alliance, the pandemic has meant withdrawing its full-year 2020 production guidance in late March and temporarily idling its coal mines in the Illinois Basin while reducing production at other mines. The company is now targeting coal sales and production for 2020 of approximately 28 million tonnes and 27 million tonnes, respectively, or 25%-30% lower than originally guided, with plans to draw down inventories in the second quarter and produce in the back half of the year to meet existing contractual obligations, Craft said. In line with losses expected for major coal producers, Alliance recorded a first-quarter attributable net loss of $144.8 million, falling year over year from a net income of $276.4 million.

[Jacob Holzman]

More: U.S. coal industry needs to consolidate in light of pandemic, Alliance CEO says

Comments are closed.