Falling coal prices, rising operational costs and increased pressure from natural gas and renewable energy resources will push coal miners out of the market and reduce U.S. coal production volumes another 27.9% by 2028 compared to 2019 estimated production, according to Fitch Solutions Macro Research, a product of Fitch Solutions Ltd.
Coal production is expected to decline to 680 million tons in 2019 before falling to 490 million tons by 2028, Fitch Solutions wrote. Already, the sector has witnessed numerous bankruptcy court restructurings due to pressure from competition from other energy sources in the U.S. and a recent weakening in demand for coal overseas.
"The U.S. coal mining sector will face headwinds from deteriorating domestic market conditions as U.S. thermal coal consumption hits multi-decade lows while export growth will not offset the decline," Fitch Solutions wrote in the Oct. 22 forecast. "Consolidation in the sector will continue as miners look to benefit from cost synergies and transition to coking coal operations."
Fitch pointed to several negative signs for the sector. Peabody Energy Corp. canceled its debt refinancing efforts in September when it was unable to raise debt capital in a manner in line with its goals. Meanwhile, in this year alone, large producers such as Cloud Peak Energy Inc. and Blackjewel LLC were forced to file for bankruptcy, several years after a more substantial, initial wave of bankruptcies swept over much of the rest of the sector.
The decline in domestic coal use continues despite several regulatory moves from the Trump administration that were favorable to coal, including finalizing a replacement for the Obama administration's Clean Power Plan, which placed carbon dioxide emission restrictions on power plants.
"While on the surface these may seem promising for the coal industry, we do not see these shifts as enough to turn around the U.S. thermal coal consumption decline as domestic coal-fired plants continue to retire," Fitch Solutions wrote. "Companies in coal-friendly states may see [the Trump administration's Affordable Clean Energy rule] as an opportunity to reduce costs for coal-fired plants by loosening emission standards; however, we maintain our view that this will not thwart the overall industry decline."
Fitch added that it does expect demand for coal from emerging markets to drive U.S. export growth, but not enough to supplant weaker domestic demand or reverse the industry's decline.