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Producers talk strategy amid met coal volatility; EIA reduces export estimates

Amid the recent significant fall in metallurgical coal prices, several experts and executives have discussed the impact to the industry as well as strategies for the fourth quarter and heading into 2020.

Seaport Global Securities LLC analysts wrote in a note last week that the effects of the "dramatic fall" in coking coal prices is likely to take a more significant toll on the sector's fourth-quarter financials, especially on eastern railroads. However, they also noted that metallurgical coal prices appear to have stabilized in the last few weeks as China and India increase their spot activity.

Speaking on their third-quarter earnings calls, several coking coal producers' executives discussed the price fall and pointed out their strategies to handle the volatile market in the near-term. The executives spoke about the flexibility, efficiency and strength of their assets, noting their ability to withstand a further deteriorating market as well as a surge in demand.

Ramaco Resources Inc. Executive Chairman Randall Atkins said his company is keeping a "good deal of production optionality on the table" to meet future demand levels in the coming year.

Looking ahead into next year, the U.S. Energy Information Administration projected in its latest "Short-Term Energy Outlook" that U.S. coal exports will total about 92.9 million tons in 2019, sinking to 85.1 million tons in 2020. In January, the administration had projected exports would total 102.4 million tons this year and 94.4 million tons next year but by December had reduced both estimates by more than 9% as seaborne market conditions continued to weaken.

Over the 12-month period, the administration also reduced its coal production expectations for 2019 by 4.5% from an estimated 729.5 million tons in January to 697 million tons by the December report. Its 2020 expectations fell 11.6% over the time frame to 601.1 million tons.

There were several developments in the bankruptcy courts as well last week. In response to objections filed by Consol Energy Inc. and the United Mine Workers of America, or UMWA, Murray Energy Corp.'s superpriority lenders said both entities are trying to second-guess the debtor in its bankruptcy proceedings.

The objections, if granted, would threaten Murray Energy's ability to meet the needs of its customers, employees and other stakeholders, throwing its entire reorganization into disarray, the lenders claimed.

"Neither the UMWA nor CONSOL has argued that the debtors could reorganize without the [debtor-in-possession] facility, or that there is any alternative financing available," the lenders stated in a filing. "Moreover, neither the UMWA nor CONSOL has submitted any evidence that suggests that the debtors' entry into the DIP facility does not reflect the debtors' prudent business judgment."

In the Cambrian Coal Corp. bankruptcy proceeding, the owner of properties in eastern Kentucky claimed that American Resources Corp.'s bid on the debtors' leases was invalid. Hazard Coal Corp., which owns those properties, said its lease with a Cambrian subsidiary to mine that land ended with an event of default before the debtors' filed for bankruptcy protection.

As such, Hazard claims American Resources was not eligible to bid on the coal lease and that "the liabilities will remain those of the Debtors' bankruptcy estates to the detriment of the creditors of the estate, including Hazard Coal."

Additionally, citing the U.S. Government Accountability Office, a government budget watchdog organization wrote in a report last week, regarding the Black Lung Disability Trust Fund, that Congress would need to increase the coal excise tax by 25% from last year's levels to eliminate the fund's debt by 2050.

The tax rate that supports the trust fund, which compensates miners who develop black lung disease from working in the coal mines, declined steeply this year after legislative efforts to extend the rate failed in 2018. That rate had been 55 cents per ton of surface-mined coal and $1.10 per ton on coal from underground mines, but sank to 25 cents and 50 cents, respectively, in January.

Upcoming events

Coaltrans USA: The 2020 conference will take place on Jan. 23-24, 2020, in Miami.

15th Annual Southern African Coal Conference: IHS Markit will hold a conference from Jan. 29-31, 2020, in Cape Town, South Africa.