US coal producers must be feeling pretty unloved at the moment. Having seen domestic demand drop in the face of ultralow gas prices and increasingly stringent environmental regulations, US producers have been increasing the amount of coal exported to the markets in Europe and Asia. However, this flood of new coal into the consuming markets has seen prices drop to loss-making levels for higher-cost US and Russian producers, as well as smaller miners in South Africa, Colombia, and Australian and Indonesia. If it drops any further – as many analysts think it will – it will even begin to threaten the profits of the mining majors.
Pressure is now building for US producers to cut back production, curbing the glut of coal and allowing the market to rebalance. And this pressure will only increase as US utilities are starting to cancel contracted tonnages and even to sell coal from inventories that are at record levels – further dampening domestic demand.
So, more bad news for an industry that has already seen its share of pain this year – at least until the immediate oversupply issues are worked out. Longer-term, however, the market looks better balanced and the potential for US exports to Asia more sustainable. Until then, the US industry faces a horizon with far more dark clouds than silver linings.
Written by Jonathan Rowland, Editor of World Coal.