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Coal optimistic about Trump, while analysts balk and environmentalists fret

Industry leaders remain confident that Donald Trump can revive the ailing coal industry despite caution from analysts, while greens voice concern about his "anti-environmental" Cabinet picks.

As the U.S. Congress moves to close for the year, the chairman of the Congressional Coal Caucus, Rep. David McKinley, R-W.Va., told S&P Global Market Intelligence that he is bullish about the chances to revive the beleaguered industry and, above all, deliver on the promise of sector jobs.

"This is one of those black-and-white issues," McKinley said, referring to the choice between Trump and Democratic candidate Hillary Clinton. "It was a choice we had to make and I believe that President Trump will be able to accomplish much of what he's trying to do."

McKinley said he did not expect a full return to coal production and employment levels of the past, "where we're not using automation," but he believes there are opportunities to bolster the industry in the years ahead, including opening the door to exports.

However, some analysts think coal's post-election optimism is "overdone." In a Dec. 15 research note, Morgan Stanley warned that several headwinds will limit the coal sector's response to recent price surges. The report said that rising natural gas prices are expected to boost coal in 2017 but added that most of those gains should be lost by 2018 due to new generation from gas and renewables and from economics-driven power plant retirements.

"While rolling back environmental regulations might save some coal plants on the margin, it doesn't do much to change the overall outlook," the report said. "In order to save coal, gas prices need to move higher."

The frustration of green groups on Trump's Cabinet picks has become more evident this week, following his offer to coal industry proponent U.S. Rep. Ryan Zinke of Montana as head of the U.S. Department of the Interior and to Rick Perry as secretary of the Department of Energy.

Zinke has backed energy production on federal land, including strong support for coal mining, earning him industry praise. Zinke's advocacy on behalf of coal has also extended beyond state borders, including support for export facilities along the West Coast, despite strong local opposition in Washington and Oregon.

Yet such approval has been offset by environmental groups such as Friends of the Earth, with its climate campaigner Marissa Knodel suggesting that Zinke "will use Interior to plunder public lands."

"Representative Zinke and Donald Trump are determined to turn our public lands and waters into energy sacrifice zones," she said. "Zinke denies climate change science, and champions increasing fossil fuel development for corporate profits over the health and safety of people and the planet. A secretary of the interior should defend our natural heritage, not the fossil fuel industry."

DOE pick Perry received just as much criticism, with green groups calling him "uniquely unqualified" to run the agency, for vowing to scrap the department should he become president during his 2011 presidential campaign.

"Oops. Trump did it again. With these nominations, it's clearer than ever that Donald Trump is hoping to install the most anti-environmental Cabinet in our nation's history," League of Conservation Voters President Gene Karpinski said. He added that the nominations add up to Trump creating "a polluter paradise that is completely at odds with public support for protecting our air, water, lands and wildlife."

Meanwhile, it has been a good week for some coal giants, including Peabody Energy Corp. which will be the latest of the large coal producers to emerge from bankruptcy after it files its plan of reorganization by Dec. 21.

CONSOL Energy Inc. is rather bullish on surging coal markets, and hopes to complete the split of its coal and natural gas exploration and production businesses in 2017. "If the market cooperates, and it's been looking more and more like the market wants to cooperate out there when it comes to coal markets, our view, our objective, is to try to get that split done in 2017," CEO Nick DeIuliis said Dec. 13 at an investors day.

Its sponsored master limited partnership, CNX Coal Resources LP, plans to increase coal sales and expects greater EBITDA in 2017. With an improved market for coal, CNX Coal on Dec. 13 reported that it plans to sell between 6.25 million tons and 6.75 million tons of coal in 2017, compared to 5.90 million tons to 6.10 million tons expected in 2016.

However, metallurgical coal market observers say the first-quarter 2017 met coal benchmark settlement of $285/tonne could represent the top of the largely supply-driven market. In a recent interview with S&P Global Market Intelligence, Doyle Trading Consultants CEO Hans Daniels said the peak has probably been reached.

FBR & Co. now estimates the full-year average of quarterly benchmarks at $210/tonne, compared to the previous estimate of $180/tonne. FBR expects the second-quarter benchmark will fall to $230/tonne and drop off to $130/tonne by 2018.