The rating agency has also revised its price sensitivity assumptions for seaborne coal prices. In the medium-term range, met coal has been lifted to $90-$130/mt from $85-$90/mt, and Newcastle Thermal assumptions have been increased to $50-$65/mt from $53-$58/mt.

“Although we do not view the recent price uptick in met coal as ultimately sustainable, we also are not expecting prices to return to the low levels seen in late 2015 and early 2016, which were themselves a function of an oversupplied market and miners still working through production rationalizations,” said Anna Zubets-Anderson, Moody’s vice president, senior analyst.

Even as U.S. metallurgical coal producers have significantly cut back production, they will continue to be disadvantaged by longer distance to the Asian markets, a strong U.S. dollar and higher position on the cost curve.

Additionally, Moody’s analysts expect the U.S. thermal coal industry has seen the bottom due to rising natural gas prices and rationalization of production, even as the Energy Information Association’s (EIA) anticipates a decline in coal consumption of 9% in 2016 due to Mercury and Air Toxics Standards (MATS) implementation, and only a modest recovery in 2017 due to growth in electric generation.

“For the thermal coal industry, the increase in natural gas prices has been supportive to a material price recovery across all U.S. coal basins in the last few weeks,” Zubets-Anderson said.
An additional boost to the struggling sector is the likely benefit from consolidation, as major U.S. coal producers emerge from Chapter 11 reorganization with debt levels Moody’s believes will be maintained at a fraction of their pre-filing amounts.