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Coal, steel observers question Trump on trade as sectors squeezed abroad

President Donald Trump lauds the steel and coal industries, but some say the impact of his administration's trade policies are having unintentional but negative impacts on coal and steel, both struggling sectors in the U.S.

Steel remains under pressure, and the coal sector broadly continued a secular decline since Trump took office, particularly in recent months as the country's engagement in a trade war with places like China and Turkey weighs on businesses trading in those regions. The pain for coal producers is particularly acute as broader energy policies, like those that favor natural gas, exacerbate the market forces already supporting a shift away from coal consumption.

"The Trump administration's ability to just sort of 'call off the dog' as someone put it to me the other day, has been helpful to the industry," Jim Thompson, executive director of U.S. coal at IHS Markit, said Nov. 7 at the MetCoke World Summit 2019. "But, you know, the administration has found itself as very much pro-energy, not just pro-coal. Some of these policies that are in place have also allowed more pipelines to be built. Gas is penetrating further. It's getting cheaper. From a market standpoint, you know, that's been a challenge for coal."

The Trump administration campaigned on bringing back the coal industry, which, by several measures, has not occurred. Coal plants are still retiring, production is down, bankruptcies continue and now the administration's trade war is affecting demand for coal and materials related to its supply chain. Murray Energy Corp., whose Founder, President and CEO Robert Murray was a vocal supporter of the Trump campaign, pointed to trade issues and the availability of cheap liquefied natural gas in Europe as reasons for the company's recent bankruptcy.

While the U.S. steel industry's prospects improved in the initial months following the rollout of tariffs on other countries, production and profitability subsequently dipped lower. Meanwhile, new capacity threatens to keep the U.S. market structurally oversupplied as demand slows. Uncertainty around resolving a dispute between the U.S. and China is proving particularly problematic for the steel supply chain.

"U.S.-China is the big, headline issue," when it comes to global trade, said Hector Forster, a senior editor who oversees iron ore, metallurgical coal and coke coverage at S&P Global Platts. "Indirectly, the whole U.S.-China trade issue is so big that it really affects sentiment globally."

Nicholas Cron, vice president of portfolio optimization and marketing of coal exporter XCoal Energy & Resources LLC, said at the conference that the impacts of the tariffs will ripple through the supply chain and impact the ability to invest in future projects as well.

"I think that there is a serious pause on any type of investment or capital that needs to be outlaid for future projects because of the current trade uncertainty, not just between the U.S. and China, but just globally," Cron said. "You can't base your business on the hope that's going to go away. You need to find a solution today."

Thompson said that, while some may question whether it was wise for the administration to get involved in certain global trade disputes, there is no question the disputes and ongoing uncertainty have negatively impacted the export market for coal.

"The administration has been good for coal, but maybe it's been difficult for coal markets," Thompson said. He added that there are likely to be even more coal bankruptcies going forward, including some that may result in reduced coal production.

U.S. steelmakers suffer from an overcapacity that makes it difficult to increase prices except when global economies are growing. That problem may not resolve anytime soon even though the country's president "clearly" has made the steel industry a priority, said Becky Hites, president of Steel-Insights LLC.

"I happen to be a supporter of our president, but if you believe he's married to any person or any idea for his lifetime, you're not paying very good attention," Hites said. "It's a means to an end, and if it stops working, he's going to try something else. That's what we elected him to do. We elected him to change things, not sit there and try the same old thing. So, do I think that there's a possibility he'll throw the steel industry under the bus? Absolutely, if it suits his purposes."

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.