Even Trump Can’t Keep Coal Companies From Declaring Bankruptcy
President Trump campaigned on bringing back the coal industry. Unfortunately for coal miners, who have to be some of the hardest workers in the country by going underground and risking their health and lives to supply energy to tens of millions of people, economic forces outweigh any rhetoric from Trump.
Coal companies are struggling
Coal companies are reporting disappointing financial results and filing for bankruptcy. It is an extremely tough financial environment as the price of coal has fallen 38% from its recent high in October 2018 and is back down to 2016 prices.
Peabody Energy reported a larger EPS loss for the September quarter than analysts had forecast ($0.57 vs. $0.41) compared to positive EPS of $0.63 a year ago. Revenue fell dramatically to $1.4 billion, down over 21% year-over-year. Price declines hurt the results but sales volume also fell almost 9% to 44.8 million tons. Analysts are also projecting a $(1.07) per share loss for 2020, so the outlook is pretty bleak.
On July 1 Blackjewel filed for bankruptcy, which impacted about 600 workers. While the mines have been bought by another company and mining resumed in October, this isn’t a picture of a healthy industry.
Another indication was Murray Energy, the nation’s largest privately owned coal producer and the third largest overall, filing for bankruptcy at the end of October. This coincided with Peabody’s disappointing results and cratered the Dow Jones U.S. Coal Index.
Coal plants continue to shut down
The U.S. Energy Information Administration or EIA’s data shows that, “between 2010 and the first quarter of 2019, U.S. power companies announced the retirement of more than 546 coal-fired power units, totaling about 102 gigawatts (GW) of generating capacity.”
It also appears that in the past few years power generation companies are willing to retire larger and newer plants than previously. The EIA has found that, “Coal-fired units that retired after 2015 in the United States have generally been larger and younger than the units that retired before 2015. The U.S. coal units that retired in 2018 had an average capacity of 350 megawatts (MW) and an average age of 46 years, compared with an average capacity of 129 MW and average age of 56 years for the coal units that retired in 2015.”
If this trends continues future retirements should continue to have a large impact on coal miners, even though fewer plants are closing.
Coal used to generate electricity forecast to decline
The EIA estimates that coal was used to generate 1,800 million megawatthours of electricity in 2010 for the PJM Interconnection transmission area and should fall to 900 million megawatthours in 2020. As a percentage of electricity generation coal fell from 54% in 2010 to a projected 20% in 2020. Natural gas and wind are forecast to be the fastest growing sources.
It may only get worse
The Association of American Railroads publishes weekly and year-to-date data on U.S. rail shipments. The latest information as of November 2 had coal shipments down 7.8% for the year and a dramatic decline of 17.5% for the week. As you can see from the previous six weeks coal shipments have declined over double digits year-over-year.
September 14: Down 5.8%
September 21: Down 10.4%
September 28: Down 11.5%
October 5: Down 13.6%
October 12: Down 14.2%
October 19: Down 12.8%
October 26: Down 16.8%