The U.S. coal industry is reportedly finding miners are scarce as they aim to ramp up metallurgical coal production in the face of improved demand.
Coal sector jobs are being watched very closely as President Donald Trump and his administration have insisted a coal jobs boom is on the way as it strips away regulations and other perceived obstacles to coal production. While the timing of the election has closely aligned with increasing production and employment driven largely by rising international prices on metallurgical coal, some producers are suggesting coal miners are not as easy to come by as some might have expected given the rapid shrinkage of the sector.
In a June 7 research note, analyst Lucas Pipes of FBR & Co. said labor was "frequently cited as a limiting factor" by companies responding to improved metallurgical coal prices. In previous research, Pipes estimated that U.S. production of metallurgical coal could increase 10 million tons to 16 million tons over the next 12 months to 18 months, a figure Pipes claims the industry views as reasonable if not a bit higher than internal estimates.
"Noticeably, labor was frequently cited as a limiting factor. Producers and contractors alike are struggling to fill vacant positions, with employee turnover increasing," the note states. "Competition for labor is increasing, putting upward pressure on wages. We were surprised by the level of urgency with which market participants characterized the constraint."
Comments from coal producers, Pipes wrote, prompted FBR to examine official employment data for coal counties in West Virginia and Virginia, where much of metallurgical coal is mined. According to that analysis, there has a been a "sharp decline" in unemployment compared to state and national averages. Pipes said this could delay growth plans and put upward pressure on U.S. production costs.
"We noticed that labor pressures are not only arising from direct hiring from coal producers but also from increased activity of contractors, many of whom are hired for retooling efforts after periods of unsustainably low maintenance spending," Pipes said.
In a recent interview with S&P Global Market Intelligence, Alpha Natural Resources Inc. CEO David Stetson noted that the mood in the coal industry has completely changed, as steep production declines have slowed or stabilized. Coal miners, Stetson said, are in a much different position than they were only a few months ago when layoffs were occurring across the coalfields.
"We've taken it from that to having job fairs and hiring," Stetson said. "They've seen their wages go up. They've seen their benefits get better."
Warrior Met Coal Inc.'s vice president of safety and communications, William Stanhouse, told S&P Global Market Intelligence that "it continues to be a challenge to recruit experienced coal miners" but it has not impacted the company's ability to safely operate mines. He noted the company has hosted job fairs and look at recruiting outside of its primary operating region in Alabama.
Miners that were driving up to an hour to work every day, Stetson said, are now taking on new opportunities closer to home. Stetson noted labor costs at Alpha have gone up over $30 million in the last fiscal year as coal companies seek that "great, quality worker."
"I think the labor market has tightened dramatically," Stetson said. "It's very competitive."
Arch Coal Inc. CEO John Eaves also noted on a Feb. 8 earnings call that attracting employees had been a challenge. On the call, he said the company was having a "lot of trouble finding skilled labor" in the East, though the tight labor market was an issue across the sector.
"So I think a lot of those people [during] the last downturn decided they were going to move on and look to other industries for employment," Eaves said. "So I think that will be a challenge."
During its recent bankruptcy reorganization, Peabody Energy Corp. noted that miners were not the only ones leaving the industry after a prolonged period of anxiety over the future of the coal sector. It insisted that a multimillion award package for key employees was essential as "certain employees may seek alternative employment, especially where their skills are transferable to other industries."
"The increased workload on the remaining employees, combined with the well-publicized challenges facing the coal industry and recruiting from other employers, particularly with respect to those employees with transferable skills, have accelerated the departure of employees," Peabody noted in a filing last summer.
Some producers buck the trend
On the other hand, Murray Energy Corp. CEO Robert Murray told S&P Global Market Intelligence in a recent interview that he was not having much trouble keeping labor at his steady production rate and that the issue is more likely faced by "coal companies that go in and out of the marketplace at every turn." On their first earnings call since a recent initial public offering, Ramaco Resources Inc. President and CEO Michael Bauersachs said a job fair for its new Elk Creek operation in Logan County, W.Va., one of the hardest hit counties by employment loss, was a success.
In an email to S&P Global Market Intelligence, Randall Atkins, executive chairman and director of Ramaco, confirmed the company is "bucking the trend" highlighted in Pipes' research note. He said the job fair held a few weeks ago was meant to fill 60 jobs at the Elk Creek mining complex but attracted about 800 miners. The company was only able to interview about 350 that day, he added.
Atkins said there are a number of reasons he believes Ramaco is in a favorable position, including physical working conditions that allow workers to stand as they work, a position as a new company with a positive outlook and strong balance sheet, reputable management, attractive compensation packages and other factors.
"Miners, like anyone, want to work for a safe, stable, growing company where they have an opportunity to grow with that company and not worry whether a company's financial condition is such that they worry if the next paycheck will be there in two weeks. Given volatility, especially in met coal markets, that is a genuine concern," Atkins said. "I think many mines having hiring problems have indeed had problems in the past with bankruptcy, timely wage payments and poor operating mine conditions. Miners have long memories."
Other requests to multiple metallurgical coal producers for comment on coal labor conditions and hiring experiences were not immediately returned.