An S&P Global Market Intelligence analysis shows that recent coal production gains did not increase coal mining jobs, as distressed companies appear to have boosted efficiency.
Increasing worker productivity, generally, reduces per-ton coal costs. This was a focus of many coal companies that are only recently beginning to see a respite from a perfect storm of natural gas prices, environmental regulations and mild weather pressing down on coal demand.
Productivity varies mine-to-mine, but is vastly different depending on mining region and geology as well as mining method.
Much of the recent improvement in productivity and coal production has occurred in the Powder River Basin, where relatively few but massive coal mines have responded to the recent uptick in demand. There, coal worker productivity went from 20.6 tons per employee hour in the second quarter to 33.9 tons per employee hour in the most recent quarter. In the past few years, that figure has hovered above and below 30 tons per employee hour.
Amid a recent rally in prices, U.S. coal producers boosted coal production in the third quarter after production fell for three straight quarters. Meanwhile, coal employment continued to drift downward.
As an example, another recent analysis of U.S. Mine Safety and Health Administration data showed Peabody Energy Corp. managed to boost production by nearly one-third quarter-to-quarter with just an extra 17 employees over the average 4,250 reported in the second quarter. The bulk of Peabody's coal production comes from its operations in the Powder River Basin.
Cloud Peak Energy Inc., a pure-play Powder River Basin miner, indicated managing its workforce had been key to keeping costs down as it began to ship more coal in the third quarter.
"Our mines are all well positioned to meet our contracted position for the rest of the year as we have stayed up with our pre-stripping and equipment maintenance," Cloud Peak President and CEO Colin Marshall said Oct. 27. "Once again, I've been very impressed with the way our employees have been prepared to work flexibly to allow us to manage costs as shipments slowed and have now picked up."
Surface mines in Central Appalachia, the Illinois Basin and Northern Appalachia all experienced a similar boost in the third quarter, though the increase began a quarter early in the Illinois Basin. Still, surface mine productivity in the Illinois Basin, the top performer of those three basins, lags recent historical highs. Surface mines in Illinois Basin averaged 3.9 tons per employee hour, but have been as high as 5.1 tons per employee hour.
The trends are less homogenous at underground mines in the region. Central Appalachia's underground productivity has largely stayed flat or slowly declined in recent quarters. Meanwhile, underground productivity at Illinois Basin mines is slowing and beginning to converge with the average productivity figures of Northern Appalachia, where there has been a trend of increased productivity since early 2015.
Looking more closely, Central Appalachia underground productivity has largely stalled as production did the same through 2016. Since the second quarter of 2015, Northern Appalachia has generally increased productivity, even when production dipped lower.
Alpha Natural Resources Inc. CEO David Stetson recently said in an interview that because coal producers have little control over demand, they must prepare by operating as efficiently as possible. Alpha, recently out of bankruptcy, now comprises mostly Central Appalachia mines.
"We have very little control over the metallurgical pricing," Stetson said. "The only thing we have control over is on the cost side. We're designing processes and procedures internally that will allow us to continue to be very efficient on the operating side and to keep our cost at a level that even if the market retrenched it will not cause any concern to me, as CEO of ANR."
After a long and steady increase in productivity up until the end of 2014, the Illinois Basin has begun to see its underground coal productivity drop as underground production began to step down. Foresight Energy touted its ability to produce coal off its longwall at a high rate of productivity.
"So as we look at our cash cost and as mine safety and health data confirms, our operations have historically been among the most productive underground mines on a clean ton per employee hour basis, and this quarter was no different," said James Murphy, Foresight's chief accounting officer and vice president. "The high productivity allowed us to leverage our fixed cost and maintain our low-cost position."