2020: An Inflection Point

Welcome to the combined January-February 2020 edition of Coal Age. This is a popular edition because it carries the Annual Forecast and the U.S. Longwall Census. It also provides the year-end production statistics in addition to other important articles. Looking at the top 10 coal-producing states and regions (See U.S. News, p. 7), readers can see that on December 28, total U.S. production stood at 700 million tons — the new floor. Annual production dropped by 50 million tons in 2019. The Annual Forecast discusses these numbers in depth.

The U.S. Longwall Census, which tallies the information for some of the nation’s most productive underground coal mines, noted a slight downturn as well. Overall U.S. longwall production dropped roughly 6 million tons or 3.5% to 163 million tons in 2019. One longwall closed, bringing the total to 39 faces.

Last year, U.S. coal markets were dealt a series of blows. By the end of the first quarter, forward prices for thermal exports in Europe were declining with less demand. By midyear, it had become clear that coal had lost more of its domestic U.S. market share to natural gas. The trade rhetoric between the U.S. and China began to heat up, which created problems for coking coal markets. Even though production was down considerably, the U.S. was still swimming in thermal coal and the party was over for met producers.

What happens now? If everything remains the same, the U.S. coal market can expect further consolidation in 2020. The coal companies with strong balance sheets and contracts for delivery are in a good position. Those with unsustainable mining costs will be forced to idle production.

Can it get worse? Yes, if the political pendulum swings the other way in this year’s presidential election. One Democratic candidate, former Vice President Joe Biden told coal miners recently they need to learn to code. Former New York City Mayor Michael Bloomberg, an anti-coal zealot, has also entered the race. There will be no sympathy from the left.

Could it get better? Yes. The Phase 1 deal struck between the U.S. and China could secure more exports for U.S. coal (See Annual Forecast, p 29). A turnaround in the global economy and steel markets would benefit all coal producers worldwide. Coal’s market share for U.S. power generation could grow if declining petroleum prices disrupt natural gas markets. A drop in the hydroelectric aspect of the American renewable energy portfolio could also open market share to other fuels. In the meantime, the name of the game is to hold production costs as low as possible to weather the rough seas ahead.