U.S. Coal Should Be Spared as Demand Dims in 2020, Analyst Says

April 3, 2020, 5:00 PM

U.S. coal producers’ revenue will be largely spared this year as the coronavirus drags down consumption, thanks to long-term supply contracts with utilities. But prospects for 2021 look far more dire.

As much as 90% of 2020 power-plant coal from publicly traded miners is already committed, according to Mark Levin, an analyst with Benchmark Co.

That means utilities are still buying the fuel even if they don’t need to burn it. While some may be deferring shipments, he hasn’t heard of it happening, yet. Shipments and pricing have been stable this year, but coal may be piling up on the ground. That will come back to haunt miners next year, when Levin estimates that only 37% of production is committed.

“Going into next year, inventory could be through the roof,” Levin said in an interview. “If you have excess coal, it will be very difficult to sell.”

With factories shutting down and millions of people at home instead of going to work, demand for power has slumped. And with prices for natural gas, an alternative fuel, trading near 25-year lows, many utilities are choosing to burn less coal when they need to reduce power production.

Levin expects U.S. electricity generation from coal this year to decline almost 13% from 2019. That translates into about 470 million tons in 2020, compared with 540 million tons last year.

While long-term prospects for thermal coal suppliers remain “dire,” Levin doesn’t expect to see a wave of bankruptcies this year. Many miners have enough cash to ride out 2020, though there could be some failures next year, he said.

“Nobody who sells thermal coal is in a good position.”

To contact the reporter on this story:
Will Wade in New York at wwade4@bloomberg.net

To contact the editors responsible for this story:
Joe Ryan at jryan173@bloomberg.net

Steven Frank, Joe Richter

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