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US coal production, employment declines in Q1'19

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A miner prepares to be transported to the longwall face at Consol Energy Inc.'s Enlow Fork coal mine.
Source: S&P Global Market Intelligence

U.S. coal employment declined in the first quarter, compared to the prior quarter, as production volumes fell to the lowest levels reported since the second quarter of 2016, according to a preliminary analysis of federal data.

Total coal production was about 176.0 million tons from mines reporting data so far in the first quarter of 2019, down about 8.7% from the total production of 192.8 million total tons of production reported by the sector in the fourth quarter of 2018. Average coal mine employment in the same period fell about 3.0% to 52,990 jobs, according to an S&P Global Market Intelligence analysis.

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The analysis includes mines with data available as of April 29. Mines accounting for roughly 2% of coal production in the fourth quarter, many with declining production volumes in recent quarters, did not yet have data available and are excluded from the first quarter total.

After a sharp drop in the middle of 2016, coal jobs rebounded slightly and then remained roughly flat for several quarters. Coal production volumes have oscillated above the lows reported in the first half of 2016 but have never rebounded above the levels seen in the fourth quarter of 2015.

The Powder River Basin saw the most considerable quarter-to-quarter drop in coal production in the first quarter. While employment held roughly flat, coal volumes decreased 13.5 million tons, or about 16.1% quarter-to-quarter. As recently as the fourth quarter of 2014, the Powder River Basin produced 110.5 million tons of coal in the three-month period. The 70.4 million tons of coal produced by Powder River Basin producers in the recent quarter is down about 36.3% from the final quarter of 2014.

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The region is predominantly a thermal coal producer and limited export options have created a lot of pressure on mines reliant on a domestic customer base. Ongoing coal plant retirements have hurt producers with mines in the region.

Cloud Peak Energy Inc., a pure-play Powder River Basin coal producer, warned of a potential bankruptcy as it works with stakeholders after missing significant debt payments due to weak demand for the region's coal. The company noted it needed to "adjust our business to ongoing depressed Powder River Basin thermal coal industry conditions" in a May 1 securities filing.

Other major producers in the basin take a somewhat dim outlook on the region's coal production potential.

"I think we have what I'd call a sober view of the Powder River Basin," Arch Coal Inc. COO Paul Lang said on an April 23 earnings call. "We think it's going to continue to decline somewhere around 1% to 3% per year. And within that, we think the higher-quality mines will tend to stay a little bit better than the 8,400 quality mines. It's a great story as far as cash generation, but I just don't see any expansion or any growth possible out there."

Eastern U.S. coal regions, including the Illinois Basin, are reporting success placing coal into seaborne coal markets. The outlet has allowed production and employment to remain somewhat stable in those regions in recent quarters. However, since the fourth quarter of 2018, Central Appalachia coal production has been sliding and average coal employment appears to have followed in the recent quarter.

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While prices for seaborne thermal coal have been softening in recent weeks, many coal producers remain optimistic about their prospects for sales abroad. Alliance Resource Partners LP CEO Joseph Craft said the company is delaying its plans to ramp up production at its Illinois Basin to the tune of close to one million tons this year as they wait for export markets to improve.

"Internationally, we continue to believe the long-term supply-demand fundamentals of the global coal markets will provide opportunities for Alliance's strategically located low-cost mines," Craft said. "In the short term, however, these markets are under pressure. While we expect opportunities for coal exports to develop later this year as markets improve, it is difficult to predict the timing of when conditions will become favorable."