US coal production drops in Q3 2023; more declines loom

US coal production slipped 6.8% to 144.0 million short tons in the third quarter compared to the same period of 2022, according to S&P Global Market Intelligence data.

At the same time, average quarterly employment in the US coal sector rose by 2.9%.

After a long, steep decline in coal production starting around 2015, the industry has somewhat stabilized in recent quarters, even as domestic customers shut down coal-fired power plants in favor of less carbon-intensive electricity generation. However, the industry has primarily leaned on improved export demand to compensate for declining domestic purchases. With natural gas prices holding relatively low in recent months, the nation's utilities also face little pressure to turn to what remains of their coal fleets.

Power plants did not draw down their inventory as much as expected in the summer, according to S&P Global Commodity Insights research. A relatively mild winter would mean US coal's largest customers will come through the winter with a substantial supply overhang.

"We may be on the cusp of a pretty big [production] drop here because what we're seeing is a lot of buildup in inventories this year," said Steve Piper, director of energy research for Commodity Insights. "There's been a lot of coal shipped, but not a lot of coal burned."

EXPLORE FURTHER: Download a spreadsheet showing mine-level production data.

In its latest short-term energy outlook, the US Energy Information Administration forecast that coal production would decrease by 2.7% in 2023 compared to the previous year. In 2024, the EIA expects US coal miners to record a year-over-year production drop of 20.0%, landing at a new total annual production low of 465 MMst. US coal production for the first three quarters of 2023 decreased by 3.1% year over year, according to Market Intelligence data.

"We're going to go into the spring, which is traditionally a low-demand season and low-production season for coal with too many tons chasing too few customers," Piper said.

Eventually, producers will be pressured to rein in output. While projections for coal production declines in the US have often looked like a gradual descent, Piper noted that the reality has often looked more like a staircase, with some rebounds as total volumes explore new lows.

"I could see this being one of those step-downs that coal can't really rebound from," Piper said. "A lot of the major producers are already reorienting their businesses around, 'Our volumes are never going to be what they were. We're looking at smaller volumes at higher margins.'"

That includes a focus on metallurgical coal over thermal coal sales domestically and abroad, and on exporting thermal coal.

– Read S&P Global Commodity Insights' latest coal report. – Learn more about US coal production, exports and additional information on the coal commodity profile.

The US shipped 23 million metric tons of coal overseas in the third quarter, increasing by 19.1% year over year and by 3.7% quarter over quarter. Still, the amount of coal that miners can economically ship abroad is unlikely to replace dwindling demand in the US, Piper said.

In addition to shifts in productivity brought on by technology, variations in coal quality and geology explain divergent trends in employment and production. For example, the price of metallurgical-quality coal used in steelmaking has been relatively robust, but that coal tends to require more employee hours to mine. Conversely, large surface mines, like those in the Western US, can make dramatic shifts in production volume with relatively little impact on employment.

Coal from Powder River Basin miners, which largely produce thermal coal for use in power plants, dropped 3.6% year over year in the third quarter, while average employment was down 2.7%.

After a sharp drop in early 2020, mines in the Northern Appalachia, Central Appalachia and Illinois Basin regions steadily increased production. However, production has been drifting lower since a near-term peak in the first quarter of 2023.

Employment in the Eastern US coal regions has been rising somewhat steadily since mid-2021 but at a slower pace since the start of the year.

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