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'This industry is not dying': US coal sector looks to reasons for optimism

The mood at U.S. coal conferences tends to swing with the market, and the crowd at Coaltrans USA was looking "grumpy," one coal executive said Jan. 23 in Miami.

Early speakers at the event noted current weakness in the seaborne market and the secular decline of domestic thermal coal demand. There are several reasons for those in the U.S. coal industry to be feeling down. Natural gas prices remain persistently low, U.S. coal plant retirements continue at a rapid clip, major bankers and insurers are pledging to distance themselves from the industry, and export opportunities that briefly propped up the industry recently deteriorated.

"Every year, both the mood and the size of the conference is very dependent upon the state of the coal markets and how they're behaving," Ramaco Resources Inc. Executive Chairman Randall Atkins said at the conference. "So I'd say, from the looks of things, the mood is grumpy."

However, while coal producers see their conventional markets fading, potential new outlets for the commodity are coming into focus.

"The industry, we all know, is undergoing quite a transformation," said Ernie Thrasher, CEO and chief marketing officer of XCoal Energy & Resources LLC. "In that transformation, we have a distinct group of winners and a distinct group of losers."

Thrasher said the carbon-free world that people are envisioning is a "great goal" but seems unachievable in the near future. Credible forecasts from reputable energy groups show coal holding on to at least 30% of global electricity generation, the CEO said.

"This industry is not dying," Thrasher said. "It's been innovative, and the people in it are some of the most creative professional people I have ever met. There is light for the U.S. coal industry, there is light for the global coal industry. It's incumbent upon us not to get overwhelmed by the negative pessimism the world is preaching."

The overall balance in the industry is "quite positive," even though news headlines tend to focus on the regions and markets that are not doing so well, Thrasher added. Population growth and an increase in electricity demand in Asia, for example, provide hope for finding future buyers of coal, the executive said.

Thrasher specifically pointed to the recent trade deal that called for China to make additional purchases of U.S. metallurgical coal. The "phase-one" agreement signed Jan. 15 included a provision in which China pledged to boost imports of U.S. energy sources, including liquefied natural gas, crude oil, refined products and coal, by $18.5 billion in 2020 and $33.9 billion in 2021.

"It's good news for the U.S., it's good news for China, it's good news for the global economy," Thrasher said. "There's a lot of good news bundled up in this trade deal that no one has really unpacked."

However, CMC - Coal Marketing Co. Ltd. CEO Howard Gatiss warned those at the conference against being overly optimistic about U.S. coal's prospects. Gatiss noted that executives from Peabody Energy Corp., the nation's largest producer, were talking about a coming global supercycle for coal only a few years ago.

"Those of you who have been to these big conferences before know that I am always critical of U.S. producers and the U.S. industry, which always talks about the opportunities and don't actually face the reality," Gatiss said.

One challenge for U.S. coal producers in 2020 will be the return of coal previously going to seaborne markets, Cline Group, Inc. CEO Michael Beyer said. While many coal producers have been through bankruptcy reorganizations, the industry needs more supply rationalization to take the pressure off other producers.

"There's going to be coal come back into the U.S. where there was basically too much coal for what the market was demanding," Beyer said. "It's going to be very difficult. The next 12 months are going to be very challenging."