Coal news and updates

On September 22, Donald Trump reaffirmed his intent to revive the American coal industry--without many details on how to do it. What influences the price and demand for coal? Can Donald Trump influence the forces behind these market drivers?

 

We nominate these four factors as the most important drivers of coal prices: production and demand for steel, because the coal industry sells and exports metallurgical coal used in steel production; demand for electricity, insofar as much electricity is still generated from coal; Chinese government interference in the steel and metallurgical coal markets, because China is the world's largest steel producer and most of the companies there are state owned; and, lastly, the price of natural gas because coal competes directly with natural gas in the electric generation market. Of course a fifth factor may emerge: Presidential Candidate Donald Trump’s plan (so far unspecified) to make coal king again.

 

Let’s examine these factors most of which are not within the control of the U.S. President. From 2007 (before the market crash) to the present, steel production in the U.S. and the Rest of the World (outside China) has declined and Chinese production may be topping out as well. The coal industry can’t improve metallurgical coal sales up without a steel industry revival. (See Figure 1.)

 

The electricity market has a similar "topping" look to it (and is far more important because electric generators buy over 90% of all U.S. coal production). We see static sales in the U.S. and declining growth elsewhere. (See Figure 2.) Even if renewables, especially wind, were not crowding out coal from the power generation market, sales to the electricity industry would show minimal growth at best. The real problem? Coal can no longer compete with natural gas on a price basis as an electricity generating fuel.

 

But the price of fuel is only part of the problem. The costs to build new coal-fired power plants is higher as well. Overall power costs for a new gas fired station are roughly 20 percent lower than from a coal fired power plant. (See Figure 3.)

SOurce:OilPrice.com