Coal news and updates

The coal business, after fueling the Industrial Revolution and powering U.S. growth for much of the past century, is now beset by a glut of cheap natural gas and tighter regulation.

 

James River Coal Co. (JRCCQ:US) in many ways epitomizes these ills. After filing for bankruptcy almost four months ago with plans to sell its business, the Richmond, Virginia-based company has delayed an auction twice without announcing a buyer.

 

Lower prices, rising competition and oversupply have taken their toll on coal, cutting profits and pushing a number of companies to the brink of insolvency.

 

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“Even assuming some level of modest price recovery, these companies are still burning cash for the foreseeable future,” Kuni Chen, an analyst at UBS AG in New York said in an interview. “There’s plenty of cash and liquidity to support that for a few years. But if this continues more than that, some companies will be close to bankruptcy.”

 

James River (JRCCQ:US), more than $800 million in debt, is among at least a dozen U.S. coal-producers to enter bankruptcy since 2003, according to Fitch Ratings and data compiled by Bloomberg.

 

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A fracking boom has glutted the market with natural gas, luring some electric utilities away from coal. The electric-power sector will use 3 percent less coal next year and isn’t expected to recover to 2011 levels by 2040, the last year of a U.S. Energy Department forecast period.

 

Price Drop

 

Exports are failing to save U.S. miners. Slowing Chinese growth and rising competition from overseas, including increased Australian output, have sent the price of metallurgical coal, used in steelmaking, to a six-year low. Central Appalachian thermal coal, used in power plants to produce electricity, fell on the New York Mercantile Exchange by 4.6 percent in 2013 compared with 2012.

 

Coal plants capable of generating 60,000 megawatts, enough to power 48 million average U.S. homes, will shut by 2020 because of tighter pollution regulations, slow growth in power use, and competition from natural gas, according to the Energy Department. That’s about 20 percent of coal plants by capacity and about 6 percent of total power-generating capacity as of 2012.

 

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It’s already begun: 3.2 percent of coal-fired capacity, enough for 8 million homes, disappeared in 2012. The balance of closings will occur by 2016, when new clean-air regulations take effect, the government said.

 

EPA Targets

 

Power plant coal burning by 2020 must decline by 204 million tons, or 24 percent, to meet U.S. Environmental Protection Agency greenhouse gas targets announced June 2, Sanford C. Bernstein & Co. analysts led by Hugh Wynne estimated in a July 23 note to clients.

 

“The inefficient guys are getting pushed out of the market,” and there are “prospects for consolidation” of mining companies, said Andrew Cosgrove, an energy analyst for Bloomberg Intelligence.

 

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“You’re not going to see them all disappear,” and company bankruptcies often occur for business reasons such as higher mining costs or economic competition, Cosgrove said in an interview.

 

David Hillman, a bankruptcy lawyer with Schulte Roth & Zabel LLP (1386L:US) in New York, said in a June report that plans for 150 new coal plants have been canceled and profits from coal-fired electricity generators fell to $4 billion in 2011 from $20 billion in 2008.

 

Gas, Coal

 

Partly because of hydraulic fracturing, or fracking -- pumping fluid underground to force trapped gas from shale deposits -- natural gas caught up with coal in generating U.S. electricity in April 2012, the Energy Department said.

 

It has become “increasingly difficult for coal mining companies to compete and even survive in the current energy market,” Hillman, Karen Park and Lucy Kweskin said in the report. They predicted more coal-mine bankruptcies, without identifying specific companies likely to file.

 

At least three coal-related energy producers filed for bankruptcy in less than two years, according to data compiled by Bloomberg: Longview Power LLC, Dynegy Inc. (DYN:US) and Edison Mission Energy. The bankruptcies of James River, America West Resources Inc. (AWSRQ:US), Trinity Coal Corp., Americas Energy Co., Clearwater Resources LP and Consolidated Energy add credence to the concern for the deteriorating market for U.S. coal.

 

Many companies not in bankruptcy are cutting production and reporting revenue declines.

 

Peabody Energy

 

Peabody Energy Corp. (BTU:US), the largest U.S. coal producer, reported a $524.9 million net loss for 2013 on $7.01 billion in sales. St. Louis-based Peabody said it’s in talks with Bentley Resources Ltd. (BNLY:US) about the sale of its Wilkie Creek mine in Australia. Chris Corran, a company spokesman, didn’t reply to an e-mail seeking comment on its finances.

 

Moody’s Investors Service yesterday downgraded Peabody to Ba3, matching Standard & Poor’s downgrade in May to BB-, three steps below investment grade.

 

 

Source: http://www.businessweek.com/