COVID-19 Pandemic Decimating US Coal Industry Production, Jobs

The COVID-19 pandemic has cut a swath of destruction through the beleaguered U.S. coal industry, hurting both production and jobs.

S&P Global Market Intelligence reported that as demand has plunged the average quarterly coal mine employment fell by 13.3% in the second quarter from the prior quarter; and plunged by 23.1% from the year-ago period.

Meanwhile. coal production fell by 24.7% to 112.3 million tons in the second quarter from the first quarter – or plummeted by 37.6% compared to the second quarter of 2019.

The Powder River Basin, the largest coal-producing region in the U.S., saw second quarter production fall by about 13.4 million tons, or 21.5%, compared to the prior quarter. Over the same period last year, that amounted to a 30.1% drop.

Coal production in the key Northern Appalachia region plunged about 28.2% between the first and second quarters of this year, while coal companies cut their workforce in the area by about 12.2%.

Contura Energy Inc. (CTRA) said it will close one of its large Northern Appalachia thermal coal mines and depart the thermal coal sector entirely.

"While we would over the coming weeks or months, we believe it is wise to continue preparing as though the depressed pricing environment we've been experiencing will continue," Contura CEO David Stetson said. "Even with welcome improvements that may come, we still expect the [second] half of 2020 to be challenging."

Coal mines across the country are in peril.

"I'm not sure how to characterize this quarter other than by saying, I'm sure we would all like to never repeat the experience of operating in this kind of an environment again," said Randall Atkins, executive chairman of Ramaco Resources Inc. (METC). "This quarter reflects only two months of economic activity for us, not three. We were essentially closed for much of the month of April, and that in itself is a condition, of course, we hope never to repeat."

S&P noted, however, that coal industry output and employment had already been falling for several years even before the pandemic.

"We said that we had the capability of pivoting from the export market to the domestic market and back again, better, more cost-effectively and more efficiently than anybody else in the business, and that has not changed," said James McCaffrey, senior vice president of marketing at Consol Energy Inc. (CEIX). "But what changed in the second quarter was, there was no place to pivot to. There was just no place to go."

Even before the pandemic, an unusually warm winter hurt coal demand in the first quarter.

"Our concerns about competitive issues in the domestic coal market are increasing," said Benjamin Nelson, senior credit officer and lead coal analyst at Moody's Investors Service. "We believe that consolidation is necessary in an industry characterized by ongoing secular decline in demand combined with near-term erosion of financial strength driven by the adverse economic impact from global outbreaks of coronavirus."

Glenn Kellow, the CEO of Peabody Energy Corp. (BTU), the biggest U.S. coal producer, pointed out that the pandemic also hurt electricity demand. In tandem with "extremely weak natural gas prices and growth in renewable generation" these developments imposed even more pressure on coal demand. That has led to some idled mines and cost cutting.

"The overall weak demand, coupled with depressed pricing, has required us to continue to aggressively pursue our cost repositioning program," Kellow said. "To date, we've made significant progress… yet, still more needs to be done."

Peabody’s second quarter results included a $1.42 billion asset impairment on its North Antelope Rochelle mine in Campbell County, Wyoming, the biggest coal mine in the country.

"What seemed to be a slow-moving catastrophe not too long ago has gained momentum, and Peabody's huge write-down is a stark warning that coal mining's financial distress will continue," warned Seth Feaster of Institute for Energy Economics and Financial Analysis, or IEEFA.

IEEFA noted that overall coal demand is in a freefall.

In 2018, U.S. utilities consumed 637 million tons of thermal coal, while an additional 54 million tons were exported. But this year, utilities are expected to reduce their coal consumption to 377 million tons, a 41% decrease over two years. Meanwhile, exports of thermal coal could fall to 25 million tons, a 50% plunge over that two-year period, according the Energy Information Administration.

IEEFA further warned that the coal industry is in dire straits.

“The U.S. thermal coal market has a vast oversupply of product chasing fewer and fewer customers,” Feaster wrote. “An orderly retreat would make sense, but instead, chaos reigns. The growing probability is that the collapse of U.S. coal mining will be disorderly, resulting in bankruptcies that end in liquidation, abrupt mine closures, the abandonment of cleanup obligations, and possibly the financial collapse of some bonding companies that are supposed to be the backstop for those liabilities.”