U.S. coal mining employment dropped substantially in the first quarter, and the figures are likely to get worse as the full impact of a drastic drop in demand has likely not yet shown up in the data.
A warm winter, diminished export opportunities and an ongoing trend of power generators transitioning to other energy resources were already expected to drive coal production and jobs lower in 2020 compared to 2019, but the COVID-19 pandemic is creating further challenges for the industry. Average coal mining employment was down about 8.4% in the first quarter compared to the fourth quarter of 2019 as the production of coal declined by about 10.1% in the same period, based on the most current data analyzed S&P Global Market Intelligence.
A few coal producers had not yet reported production as of the date the information was compiled, but producers who have reported first-quarter data accounted for 99% of fourth-quarter 2019 production. The data may also not reflect layoffs that occurred, especially toward the end of the first quarter, as companies report average quarterly employment to the U.S. Mine Safety and Health Administration rather than quarter-end employment.
For example, on May 12, WOWK-TV in West Virginia reported layoffs of "dozens of workers" in West Virginia and the discharge of nearly 200 employees from a Kentucky coal mining complex. Near the end of the first quarter, Alliance Resource Partners LP announced it was idling its Illinois Basin coal production and providing customers with coal from inventory. Consol Energy Inc.'s Enlow Fork mine remains idled in response to lower demand from the virus as well. A Contura Energy Inc. executive recently estimated producers idled as much as 50% of metallurgical coal production in the U.S. due to the pandemic.
"The real question is what will happen in the coming weeks and how will those developments influence what the back half of 2020 might look like," Contura Chairman and CEO David Stetson said on a May 11 call. "That visibility is admittedly quite limited at this time, and in this environment, frankly, impossible to accurately predict exactly what pricing demand will do."
Average coal mining employment in the fourth quarter of 2019 totaled 50,709. So far, producers reported about 46,457 average coal employees in the first quarter, the lowest level in modern U.S. history. That is a decline of over 4,200 employees, the highest quarter-to-quarter decline since the first quarter of 2016.
"The U.S. coal sector has been in decline for a long time — year upon year — and 2020 will be no different," the Institute for Energy Economics and Financial Analysis warned in a March outlook. "Indeed, this may be the year in which an array of market forces in combination may simply overwhelm the industry."
The U.S. Energy Information Administration recently forecast that coal production would likely fall 24.3% in 2020.
Murray Energy Corp., the largest privately held coal miner in the U.S., is currently in the middle of a bankruptcy restructuring. It said the pandemic complicated efforts to restructure and caused its business to deteriorate "unexpectedly and rapidly from both a supply and demand perspective."
"The dramatic spread of the coronavirus had substantial negative effects on that demand from Asian coal markets, which has become yet another headwind for the debtors' business," Murray Energy CEO Robert Moore wrote in a declaration to the bankruptcy court filed May 9. "In recent weeks, the impact of the COVID-19 pandemic has had an even greater impact on demand for the debtors' product domestically, as government-mandated stay-at-home orders and closures of nonessential businesses have drastically reduced the demand for electricity generated by the Debtors' customers."
The pandemic, Moore noted, is just one of several headwinds facing the sector. Other challenges include excess coal supply, a transition to renewable energy sources, cheap natural gas and a warmer than usual winter.
"Unfortunately, the debtors and the coal industry generally expect these trends to continue for the foreseeable future," Moore wrote.
First-quarter coal production and employment have declined slightly across all major producing regions in the U.S. compared to the previous quarter. The Northern Appalachia, Central Appalachia and Illinois Basin were already suffering from a decline in overseas demand for coal before the COVID-19 pandemic hit.
Production in the Powder River Basin, the largest coal mining region in the U.S., fell precipitously in the first quarter. The coal output from the region totaled 62.6 million, a 13.4% decline quarter to quarter and 11.0% decline year over year.
Producers in the Powder River Basin are heavily dependent on domestic power demand, but utilities are continuing to retire coal plants at a steady pace. A recent S&P Global Market Intelligence analysis found that after retiring the most U.S. coal capacity in 2019 since 2015, power generators still have 9,038 MW worth of capacity slated for retirement in 2020 and another 23,010 MW of coal capacity set to retire between 2021 and the end of 2025.
Average employment in the Powder River Basin did not drop as rapidly, based on the first-quarter data. However, recent layoffs announced by several companies in the region will likely change that. Coal companies laid off least 300 employees from Powder River Basin coal mines based on announcements made on April 23.
One of the employers letting workers go in the region was Peabody Energy Corp., which warned more closures could come as the company battens down the hatches to deal with a potential drop in demand.
"Let me be clear: mines that cannot demonstrate a path to cash generation at lower pricing levels will be suspended," Peabody President and CEO Glenn Kellow said on a recent earnings call.