Many Difficult Quarters Ahead for U.S. Coal Producers

It looks like another tough eight quarters ahead for the coal industry.

U.S. producers have been mumbling lately about how, fine, maybe we can’t compete with Indonesia and Australia. But we can beat the Russians. Nyet!

Analysts at Citigroup Global Markets put the situation in sharp relief last week with a global coal market report that factored in the effect of currency markets and that lowered its production outlook for global coal in both 2015 and 2016. Darren Epps at SNL Energy has this in an SNL article published Wednesday: “Depreciating currencies of major bulk commodity exporters are bringing down costs in U.S. dollars, a continuing headwind for U.S. coal producers.”

It’s not just thermal coal we’re talking about. Epps reminds us that U.S. coal producers already cut production drastically, “particularly at metallurgical coal mines,” in 2014 and that the companies affected in that regard include Alpha Natural Resources, ArcelorMittal, and SunCoke Energy.

By Citi’s estimates, because of currency gyrations even South African coal producers may outdo U.S. producers. The analysis, by Citi’s Ivan Szpakowski, notes that U.S. producers are being battered, too, by the twin forces of low natural gas prices and rising market share for renewable energy.

And of course cheap oil isn’t helping the coal industry anywhere. Recent lower natural gas prices in Europe, for instance, mean less demand and a ceiling on coal price growth.

It’s important to keep in mind that while natural gas and renewables are both biting into coal’s piece of the energy market, each is a beast unto itself. The rise of renewables is now an independent phenomenon that will most likely grow regardless of what else is happening in energy markets. This harsh reality will only fire up our coal-industry colleagues and send them out on fresh missions to kill support for wind and solar—an effort usually confined to backrooms and legislative corridors.

It may be too late, though. The cat is out of the bag, and investors, policymakers and consumers today see renewable energy for the viable source it is.

Tom Sanzillo is IEEFA’s director of finance.