At least one analyst believes that more U.S. metallurgical coal mines are likely to shut down in the coming weeks and months following Murray Energy Corp.'s announcement that it is shutting down its Maple Eagle coal mine West Virginia.
Due to soft demand for steelmaking coal around the world, Murray's decision to temporarily idle its metallurgical coal operation is likely only the beginning of an "accelerated number of mine shut-ins in the U.S." Seaport Global Securities LLC analyst Mark Levin wrote in a Sept. 30 note. While the sector has been slow to respond as prices dipped in the past, it is reacting with greater urgency to shut down mines that are losing money this time around, the analyst added.
"At the end of the day, we think it's fair to say the market is in tough shape, and it's not abundantly clear to us why it would get a whole [lot] better any time soon," Levin wrote.
Levin estimated that about 10 million tonnes of U.S. metallurgical coal could be at risk if prices do not meaningfully improve. At least a quarter of that production could come offline in the next 90 to 120 days, with higher-cost and lower-quality supply likely to be the first to go, Levin wrote.
"Operators typically eliminate weekend and overtime shifts before idling mines, but we suspect pricing has gotten to the point where tougher decisions will have to be made," Levin wrote.
Levin added that U.S. exports of thermal coal used to generate power are also likely "off a lot" in 2020. Aside from some success from Consol Energy Inc. partnering with coal marketer Xcoal Energy & Resources, very few thermal coal exports have been contracted for 2020, Levin wrote.
"Not one industry player with whom we have chatted expects U.S. thermal exports to be down any less than 20% next year," Levin wrote.
Domestic coal sales continue to be challenged by the low price of natural gas as well. Without export demand to serve as a release valve, thermal coal production idlings could also be coming in a few months.
"If U.S. natural gas prices were to surge to $3.00/MMBtu to $3.50/MMBtu and/or European natural gas prices were to skyrocket due to weather and/or geopolitics, then the 2020 utility market would look a lot better than it does today," Levin wrote. "That's the hope, but current forward gas and power prices don't paint a rosy scenario for U.S. coal burn next year."