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Early coal mine data shows upward tick in production, but less than prior year

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Early coal mine data shows upward tick in production, but less than prior year

Early mine data indicates another bump in coal production in the third quarter, but output at those mines still lags third-quarter production in the year-ago period.

Mines that have submitted coal production figures as of Oct. 16 have reported a total of 119.0 million tons of coal was mined from their operations in the third quarter. The same mines produced 117.2 million tons in the prior quarter and 121.6 million tons of coal in the third quarter of 2016.

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The S&P Global Market Intelligence analysis is based on data from SNL Energy and includes only mines that had production data available as of Oct. 16. So far, the U.S. Mine Safety and Health Administration has provided data for 803 coal mines and facilities reporting zero tons or more of coal production. A total of 1,449 coal operations met the same criteria in the second quarter.

The 1.5% increase quarter to quarter and 2.1% decline compared to a year ago follow many recent actions by the Trump administration to boost coal.

"We are also starting to see the effects of ending the war on coal. In the first months of my administration, United States coal exports have increased by nearly 60 percent from the same time period last year," a proclamation from the president published in the Oct. 17 Federal Register said. "Together with the Congress and with our state and local partners, we can better enable improvements in energy infrastructure, streamline our nation's complex regulations, and we can become energy dominant."

A recent note from Seaport Global Securities LLC, however, noted that utilities have mostly said Trump administration actions will likely do little in terms of reversing a secular decline in utility demand for U.S. coal.

"One of the biggest problems for coal is economics. In many cases, it just can't compete like it once did, particularly in unregulated markets given weak power prices," the note stated. "[U]tilities will likely continue retiring coal plants when applicable in favor of cheaper gas-fired plants and to satisfy state-mandated renewable production standards that require a certain amount of power generation come from wind and solar."

The increase from quarter to quarter in early data was largely driven by gains in the Powder River Basin, where production climbed from 33.7 million tons in the second quarter to 40.1 million tons in the third quarter, an 18.8% increase. Production in the quarter still lagged about 0.1% compared to the prior year.

The largest Powder River Basin mine to report production so far is Cloud Peak Energy Inc.'s Antelope mine, which increased output from 6.7 million tons in the prior quarter to 7.8 million tons in the third quarter. The same mine produced 8.6 million tons of coal in the third quarter of 2016.

Above-expectation production at Cloud Peak prompted Seaport Global to raise the company's full-year EBITDA estimates.

"With the Asian steam market on fire, it's also conceivable the company priced its remaining 1 [million tonnes] of unpriced export coal at prices above what [was] modeled," Seaport analyst Mark Levin wrote. "Further, there is at least some potential that Cloud Peak may be able to take advantage of export market strength by moving more than the 4.5 [million tonnes] to which it guided for the full year. ... Cloud Peak could work, particularly because U.S. utility coal sentiment remains negative."

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Peter Kiewit Sons' Inc.'s Buckskin mine boosted production from 3.6 million to 4.7 million tons, surging above the 4.5 million tons of coal produced by Contura Energy Inc.'s Eagle Butte mine in the most recent period. Production data from the largest Powder River Basin mines, North Antelope Rochelle and Black Thunder, owned by Peabody Energy Corp. and Arch Coal Inc., respectively, has not yet been made available.

Northern Appalachia mines reporting so far have seen production fall about 8.9% quarter to quarter and remain below prior-year levels. Production in the Illinois Basin from mines reporting so far has gone from 18.4 million tons in the second quarter to 16.5 million tons in the first quarter, a 10.7% drop.

Central Appalachia, which has benefited from increased export demand for metallurgical coal, had been experiencing a turnaround in long-term decline in production in recent quarters. However, at the mines reporting so far in the third quarter, production has dropped from 12.9 million tons in the second quarter to 10.9 million tons in the third quarter. The same mines produced about 10.7 million tons in the year-ago period.

Production has also declined in the Gulf Coast, Uinta and Four Corners coal mining basins.