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Fewer coal mines idled in back half of 2018; Appalachia takes biggest hit

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Fewer coal mines idled in back half of 2018; Appalachia takes biggest hit

U.S. mines responsible for 1.9 million tons of coal production in 2018 were idle in the last quarter of the year, an S&P Global Market Intelligence analysis shows. A majority of the idlings were at mines in Central and Northern Appalachia.

About 44 coal mines were idle in the fourth quarter of 2018. Of those, 36 had been actively producing in the third quarter. Six coal mines that had been idle in the third quarter of 2018 were active again in the fourth quarter, according to an analysis of U.S. Mine Safety and Health Administration data. Mine idlings in the second half of 2018 were largely located across Appalachia.

U.S. coal producers idled production at 66 coal mines in the first half of 2018 that were responsible for producing 3.0 million tons of coal in the 12 months that ended June 30, 2018.

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Though U.S. coal companies have benefited from a booming export coal market, most remain cautious about any sort of capital investment in new mining projects. Supply discipline has allowed the market to stabilize around healthy pricing levels that support stronger margins for U.S. producers with access to global markets.

"Most producers and buyers alike agree there isn't a plethora of new supply poised to hit the market anytime soon given producer discipline and lack of investment in new projects," Seaport Global Securities LLC analyst Mark Levin noted in a February report following a metallurgical coal-oriented industry event.

By production, Central Appalachia led the major coal regions in mine idlings. The region is known for its valuable metallurgical coal reserves but has also taken the brunt of a decline in thermal coal demand. Mines that produced 1.0 million tons of coal in 2018 were idle in the fourth quarter. Northern Appalachia coal mines that were idle in the fourth quarter of 2018 produced 553,756 tons of coal in 2018.

Arch Coal Inc. recently announced a new mining project in Northern Appalachia that will allow the company to bolt on additional metallurgical coal capacity. The capital investment, which takes advantage of other nearby infrastructure owned by Arch, is a rare example of a coal producer outlaying capital for a new project in today's market even as demand draws from a limited supply base. Most coal companies are favoring capital return programs over growth projects in recent months.

"We're approaching 2019 with continued optimism, although with a cautious and conservative approach until further market economic information is available," said Warrior Met Coal Inc. CEO and Director Walt Scheller on Feb. 21.

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Most of the coal mines idled in just the fourth quarter of 2018 were in West Virginia and Pennsylvania. Both states had 13 mines each that reported being idle only in the fourth quarter of 2018. In Pennsylvania, three mines were idle in both the third and fourth quarters, while West Virginia only had one mine that was idle in both periods.

The West Virginia Legislature recently passed a bill to lower the state's coal severance tax rate for thermal coal producers in a bid to make coal from the state more competitive. While West Virginia's metallurgical coal mines have seen vast improvement in recent years amid price spikes, ongoing coal plant retirements, higher mining costs and competition from other means of generating electricity have continued to weaken demand for thermal coal from the region. The state also passed a measure that offers a tax rebate on new equipment purchased to open or expand mining operations.

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According to 2018 coal production, the largest company by mines idled only in the fourth quarter was Southern Coal Corp. Other producers that idled mines with significant production footprints in the fourth quarter include Dalton Enterprises, Inc., ArcelorMittal, Pristine Clean Energy LLC and Peabody Energy Corp.

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Watch: Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

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Jun. 20 2018 — Steve Piper shares his Q1 2018 analysis and power market insights along with guidance from our Power Forecast solution on the Market Intelligence platform. The next guidance report will be released around mid-July 2018.

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Watch: 2018 Mining Industry Outlook - What Are The Expectations?

Highlights

Mining Hot Spots, Growth, and Risk

Demand, Supply, and Mining Costs

Exploration Budgets and Trends

Investment Strategies

S&P Global Market Intelligence recently hosted a panel discussion in London to discuss the mining outlook for 2018. Our panelists include experts from S&P Global Ratings, Anglo American Plc, Bernstein Investment Research, and Management and Investec Asset Management. 

Watch the full video

Topics Covered:

  • Mining Hot Spots, Growth and Risk
    Where are the hot spots in 2018? Which countries are becoming riskier for mining? What will be the impact of politics on corporate strategies, growth, and risk?

  • Demand, Supply and Mining Costs
    How will changes in industrial production impact metals demand? What are the forecasts for new mined supply? What are the trends in mined ore grades and operating costs? Which major metal will have the greatest shortfall in supply?

  • Exploration Budgets and Trends
    What trends should we expect in 2018? Which metals and regions will have the highest budget expectations?

  • Investment Strategies
    Which investment strategies will make most sense? What is the consensus forecast for metals prices?

Moderator:
S&P Global Market Intelligence - Director of Metals & Mining Research

Panelists:
S&P Global Ratings - Simon Redmond, Director of Corporate Ratings
Anglo American Plc - Peter Schmitz, Head of Commodity Research
Bernstein Investment Research and Management - Paul Gait, Senior Research Analyst
Investec Asset Management - George Cheveley, Portfolio Manager