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Mining sector sees uptick in defaults YOY; coal industry focuses on exports

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Mining sector sees uptick in defaults YOY; coal industry focuses on exports

Year-to-date defaults within the metals and mining sector are up in 2019 from the year-ago period and most of them were missed interest payments or distressed debt exchanges, according to S&P Global Ratings.

The metals, mining and steel sector had five defaults this year as of May 15, compared to just one during the same period in 2018. Among them, thermal producer Cloud Peak Energy Inc. missed debt payments before filing for bankruptcy and Murray Energy Corp. had a distressed debt exchange in March.

While some the world's largest coal exporters have announced plans to move away from coal, the U.S. coal sector is doubling down on the potential overseas demand. Despite environmentalists continuing to pressure institutions against coal investments in favor of cleaner energy sources, others project growth in global coal demand from nations seeking low-cost energy.

"They are building coal-fired power plants because none of them have natural gas," Seth Schwartz, president of consulting firm Energy Ventures Analysis, said at a recent industry event. "So, U.S. coal exports, while they will come and go because of the worldwide volatility or markets, are in a large sense here to stay."

While the European steam coal market has seen lower prices in 2019 after a strong showing in 2018, U.S. coal producers have spoken more positively about the seaborne metallurgical market recently. But spot metallurgical exports to Europe may take a hit given weakening steel demand. This week ArcelorMittal, a major steel producer, announced it would further cut its European steel production, which could lead to complications in the market.

However, Reuters reported this week that Chinese imports of U.S. coking coal in April were five times higher than in March and were up by 130% from April 2018.

On the domestic front, federal lawmakers reintroduced a bill recently to encourage the steel industry to make fuel from what the government designates as hazardous coal waste sludge. The proposed legislation would create a $2 tax credit per barrel of oil equivalent for steel industry fuel produced at a facility in service within 18 months of the bill's passage and maintain the credit through the subsequent decade.

In the courts this week, filings showed that one of West Virginia Gov. Jim Justice's coal companies failed to make a payment on a $1.2 million court sanction imposed more than three years ago. This week, a U.S. district judge ordered the parties to submit a proposal by June 6 with a plan to pay off the debt by Jan. 1, 2020.

In federal bankruptcy court, a U.S. trustee filed an objection to Cloud Peak's plan to auction off all its assets because the company included bid protections for a stalking horse bidder that has not been identified.

The U.S. Department of Interior and the United Mine Workers of America both recently objected to Westmoreland Resource Partners LP's plan to liquidate. The Interior Department is concerned that debtors or interested parties could waive the plan's condition that the Kemmerer mine in Wyoming is sold before the plan is confirmed.

"Without the Kemmerer sale, the proposed plan does not meet this requirement because it fails to provide for the compliance obligations for the Kemmerer mines," an attorney wrote on behalf of the Interior.

The union cautioned the court against approving the coal producer's bankruptcy plan until the parties complete a collective bargaining agreement with the union regarding labor relations at the mine.

Upcoming events

Clean Coal: The IEA Clean Coal Centre is putting on its ninth international conference on clean coal technologies June 3-7 in Houston, Texas.

National Coal Transportation Association: The association is holding its 2019 Operations and Maintenance Conference from June 10-12 in St. Louis.

25th Coaltrans Asia: Coaltrans will hold a conference June 23-25 in Nusa Dua, Indonesia.