President Donald Trump and the coal industry’s mutual affinity may have improved investor sentiment toward the sector, but whether companies can parlay that into real market results is far from clear.
The dispositions of coal miners and coal executives alike have vastly improved since Trump won the election. Industry conferences and events once punctuated with dark humor, pessimism and war-like rhetoric are now filled with optimism about the future despite susceptibility to a secular decline in consumption, partially masked by recent success in moving coal to the booming seaborne market.
"A return to more rational environmental and energy policies should provide clarity and stability to the coal markets and potentially set the stage for growing coal demand in the future," Alliance Resource Partners LP President and CEO Joseph Craft said on an earnings call days after Trump's inauguration.
Coal sector sees Trump improving its public perception
Despite the optimism, domestic U.S. coal consumption has continued to decline, and overall production has hardly budged under Trump as he continues to praise the country's "beautiful, clean coal." Supporters of the president in the coal industry, however, say greater certainty and improved sentiment toward their industry have helped.
"There are a lot of hardworking Americans in the coal industry — and in related industries that support coal mining — who take great pride in their role in delivering affordable, reliable energy to the American people," National Mining Association spokeswoman Ashley Burke said. "To see an administration that values and respects that work is extremely important."
Support for coal coming from the administration is important to how the rest of the country perceives the coal industry, said Betsy Monseu, CEO of the American Coal Council. A financially healthier coal industry supercharged by positive sentiment from the White House is again attracting investors to the sector, she added.
"It is far easier to do that when the markets are improving and the government-induced pressures are subsiding," Monseu said. "[The president's show of support for coal] has opened up dialogues and created new opportunities for the industry."
At the same time, she said, marketplace and policy issues that have "tilted the playing field away from coal" remain.
Companies that sell coal to the domestic power market have yet to see a new coal-fired power plant built in the U.S., and plant retirements have continued despite Trump's efforts to support coal. The sector is enjoying a boost from exports as international pricing remains supportive, but an escalating trade war being waged by Trump and the country's global trade partners may put recent gains at risk.
Ultimately, supply and demand is the real price driver in the market, said Joe Aldina, director of U.S. coal at PIRA Energy Group, an analytics and forecasting unit of S&P Global Platts.
"I do hear more positive sentiment," Aldina said. "I think it doesn't do much for the price of coal. If anything, coal producers have gotten into trouble in the past when their sentiment doesn't meet up with fundamentals and they make decisions that don't position them well for the reality of what's happening in the market."
Policy initiatives by the Trump administration, Aldina said, have had limited impacts "at the margins" but have done little to affect the supply-and-demand dynamic facing U.S. coal.
Moving markets from the White House
However, the president's power is not limited to policymaking. Trump's Twitter habits, specifically his willingness to single out a company or an industry in his messaging, have provided fodder for studying the influence a president's words alone can have on the economy.
"We found on average the comments really do move the price," said Marketa Wolfe, an assistant professor in economics at Skidmore College who studied stock market reactions to the president's company-specific tweets with co-authors Qi Ge, also of Skidmore, and Alexander Kurov of West Virginia University.
The effect was strongest before Trump's inauguration, possibly because the market has since realized not every Trump tweet would become policy, Wolfe said. While the relatively small sample warrants further study, she said the effect may extend sector-wide when Trump praises an industry. Notably, though, in the company-specific examples Wolfe and her colleagues examined, the positive or negative effects often quickly wore off.
"These findings raise the question of whether it is optimal for high-ranking government officials to communicate industrial policy pertaining to specific companies via Twitter where unexpected statements can potentially instantly create or wipe out millions of dollars in shareholder value," the study concluded.
While the media often focuses on high-profile events, investors are far more likely to pay attention to the effects of gradual, fundamental shifts in technology trends and societal preferences, wrote Samson Mukanjari and Thomas Sterner of the University of Gothenburg's economics department, in a study analyzing the market impacts of the last U.S. presidential election and the Paris Agreement on climate change. The lack of a sizable global reaction to the election of Trump — with his desire to promote coal and threats to pull out of international climate agreements — surprised the researchers, Mukanjari said.
"This perhaps signifies the U.S.'s limited power to influence global climate policy," Mukanjari said. He said investors are more likely to pay attention to underlying factors influencing markets or announcements from countries that can more directly influence companies in their economy.
For example, political statements from China, where the government has a stronger hold on markets than in the U.S., seemed to carry more weight than other political events, according to the analysis. Investments in the sector are often made for the long term, and underlying trends outside of politics mean few companies are constructing new mines or coal-fired power plants, Mukanjari said.
"Everyone recognizes that Trump has four [or] maybe eight years in office, and that makes it harder to make long-term investments in the sector," Mukanjari said. "The major challenges facing coal may have little to do with global climate policy but technological developments that have made alternatives to coal much cheaper and changes in consumer preferences among other things. To this end, attempts to promote coal will face similar challenges."
S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.