Must-know: Why coal producers' stocks are declining (Part 7 of 10)
Global issues affecting the coal sector in the U.S.
Like any other industry, the U.S. coal industry isn’t isolated from the effects of globalization. Also, being a coal surplus country, the U.S. has to find ways to sell the excess coal to other countries. With slowing off-take of coal from domestic power producers, it makes even more sense for coal producers (KOL) like Peabody Energy (BTU), Arch Coal (ACI), Alpha Natural Resources (ANR), and Consol Energy (CNX) to look for export opportunities. The news for exporting isn’t encouraging for two reasons—slowing global demand and increasing output in other coal exporting countries.
After rising for over a decade, except in 2009, U.S. coal exports are expected to fall to 99 million tons in 2014—down from 118 million tons in 2013. During first three months of 2014, U.S. coal exports were down to 27.7 million tons compared to 31.8 million tons for the same period last year. China has imported just 0.8 million tons of coal from the U.S. in 1Q14 compared to 3.9 million tons in 1Q13. There are clear signs of China slowing down with gross domestic product (or GDP) growth coming down to expected 7.5% in 2014 compared to an average of over 10% over the past decade. Various investment banks have projected even lower growth going forward. China slowing down means less export demand for both steam and metallurgical coal.
Another threat for the U.S. coal industry is the expectation of increased coal output in other coal exporting countries, primarily Australia and South Africa. If the mines in those countries start producing coal at a higher rate, it will be a boon for power and steel hungry developing countries in Asia, notably China and India. The freight cost to import from Australia or South Africa will be much lower for Asian countries than importing coal from the U.S. As a result, the U.S. coal producers will be at loss if the production in Australia and South Africa picks up.
Falling mine productivity is adding to issues that are facing coal producers. Continue reading the next section in this series to learn more.
Browse this series on Market Realist:
- Part 1 - Overview: The coal industry in the US
- Part 2 - Must-know: Who are the major coal producers in the US?
- Part 3 - Overview: The steam coal supply chain in the US
- Commodity Markets