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US coal production rebounds in Q3'16, but jobs do not follow

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US coal production rebounds in Q3'16, but jobs do not follow

U.S. coal production rebounded in the third quarter, though reported coal mining jobs continue to decline.

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An S&P Global Market Intelligence analysis of U.S. Mine Safety and Health Administration data shows third-quarter coal production rebounded 21.5% compared to the prior quarter. Employment, which has declined precipitously since 2011, settled, with just a 1.2% employment loss in the third quarter.

Average coal employment has declined 46.1% since its near-term peak in last quarter of 2011. The loss of an average of 615 jobs in the third quarter is a significant improvement in a sector that had been averaging a loss of about 3,484 jobs per quarter since the third quarter of 2014.

Year over year, coal employment fell 29.2% in Central Appalachia; 24.2% in Northern Appalachia; 21.0% in Illinois; and 11.6% in the Powder River Basin.

Lucas Pipes, an analyst with FBR & Co., wrote in a Dec. 6 note that Arch Coal Inc. executives indicated that Powder River Basin supply is likely to be less elastic than it has been in the past.

"Arch highlighted that between itself and Peabody Energy Corp., head-count reductions totaled 600 earlier this year, significantly reducing the ability of the basin to ramp up production," Pipes wrote.

The general rebound in coal production has followed a sharp increase in global thermal and metallurgical coal prices. The increase suggests the market for coal could be approaching a more stable balance between supply and demand.

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Retired coal executive Nick Carter recently spoke with S&P Global Market Intelligence as he was serving as the interim Kentucky Coal Association president. He said the industry needed to focus on costs, including being as efficient as possible. However, even if coal producers succeed at doing more with less, Carter said a lot of the decline in production was a "rightsizing" of supply to meet demand.

"We will never see [recent highs in coal production] in our lifetimes again, I don't believe, unless the Clean Power Plan is amended in ways that let new coal power plants to be built," Carter said. " ... We're going to end up with a much smaller industry, one that has rationalized itself with regard to production."

In Kentucky, coal production remains 60.1% off from levels reported in the U.S. coal market's peak in late 2011. Employment has fallen similarly, with 65.0% fewer coal mining jobs reported to MSHA since the market peak.

West Virginia's production has fallen 36.1%, but employment has dropped 53.6%. Wyoming's decline in production was 26.2%, roughly proportional to the 25.0% loss in employment from the 2011 coal market peak to the most recent quarter.

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The decline has hit some counties particularly hard. Boone County, W.Va, has lost 3,705 jobs since the U.S. coal market peaked, a drop of 80.4%. Knott County and Letcher County in Kentucky have lost 95.0% and 93.0% of their coal jobs, with only a few dozen miners left working in each county.

One researcher said recently the concentrated loss of coal jobs in some West Virginia counties had created a "Great Depression." The state's representatives in Congress have introduced legislative efforts designed to tackle the issue.

"Coal communities throughout West Virginia and Appalachia are struggling. This administration's war on coal, and market forces, have combined to close coal mines and send thousands of miners to the unemployment lines," Rep. Even Jenkins said on the U.S. House floor. "While we work to ... reopen mines, repeal overreaching regulations, we are also needing to diversify our economy."

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