Moody's Affirms Negative Outlook on N.A. Coal Amid Lower Consumption, Prices (BTU) (ACI) (WLB)

The outlook for the North American coal industry remains negative amid ongoing challenges for both metallurgical (met) and thermal coal, including declining coal consumption and low met coal prices, says Moody's Investors Service.

The rating agency forecasts a roughly 10% year-over-year decline in the industry's EBITDA for 2016, following the 25% drop it anticipates for 2015, according to the report, "Coal Industry - North America: Lights Go Dim on Coal."

"Spot coal prices remain weak across all US coal basins due to reduced consumption and low natural gas prices," said Anna Zubets-Anderson, a Moody's Vice President - Senior Analyst. "Unless there is a recovery, miners' profitability will continue to decline as higher-priced contracts roll-off."

Coal production fell across all basins in 2015, with Appalachia seeing the greatest drop (12% to 237 short tons), according to the US Energy Information Administration. Moody's expects coal consumption to continue its decline as natural gas and renewables garner the growth in electricity generation.

"Alongside pricing and consumption pressures, the Environmental Protection Agency's Clean Power Plan will also weigh on the industry as its implementation will direct new investment toward natural gas and renewables, exacerbating the decline in coal as a fuel source in the coming years," added Zubets-Anderson.

Moody's expects coal's share of the fuel mix to decline toward 30% over the decade, compared with 39% in 2014. All US coal basins will remain under pressure, with the Illinois Basin likely to remain the most resilient to current market dynamics.

Weak seaborne markets, particularly for metallurgical coal, will also continue to weigh on US producers. The reports says that recovery is unlikely over the next 12 months due to slowing Chinese demand and continuing weak global steel production.

*** Some coal-related stocks active amid the report include: Arch Coal (NYSE: ACI), Alliance Resource Partners (Nasdaq: ARLP), Peabody Energy (NYSE: BTU), Cloud Peak Energy (NYSE: CLD), CONSOL Energy (NYSE: CNX), and Westmoreland Coal (Nasdaq: WLB).

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