Coal news and updates

Met Coal Hits Lowest Price in a Decade

Benchmark prices for the coal used in steelmaking have plunged an additional 15% from levels that had already hit a six-year low, likely heaping more pain on several miners facing a financial brink, coal industry reports show.

Japanese buyers are signing contracts that pay $93 a metric ton, the lowest price since 2004 for so-called metallurgical coal, Doyle Trading Consultants LLC and IHS Inc. ’s “Inside Coal,” a trade publication, both said on Wednesday. Japanese steelmakers and Australian suppliers agree to contracts every quarter, setting the global benchmark.

Prices have fallen more than 70% from a high of $330 a metric ton just four years ago. That spike had inspired a raft of multibillion-dollar deals among miners eager to sell at record-high prices. But their new supply flooded the market just as once-rampant Chinese demand slumped, and prices went into a tailspin that has lasted longer than many miners and analysts predicted.

This summer’s price decline is so steep that it could force cutbacks around the world, even at mines that were profitable as recently as the spring, said Ted O’Brien, chief executive of Doyle Trading Consultants. U.S. mines have already been cutting back, and this will likely force more to close entirely, he added.

The three-month benchmark price is set as the contract price between Australian suppliers and Japanese consumers, according to Doyle Trading Consultants LLC and IHS Inc.’s “Inside Coal.”

The decline deepens a financial crisis that metallurgical coal had sparked among U.S. miners, analysts said. Many of them had taken the most risk during the price spike of 2011, and have spiraled into or toward bankruptcy as falling prices have caused them to struggle to cover payments on billions in leftover debt.

Coal producers Xinergy Ltd. and Patriot Coal Corp. filed for chapter 11 protection earlier this year. Walter Energy Inc. skipped an interest payment due June 15 and has warned it might consider filing for bankruptcy if it can’t restructure its debt. Arch Coal Inc. is working with advisers at law firm Davis Polk & Wardwell LLP and Blackstone Group LP to explore ways to cut its debt load, The Wall Street Journal reported last month.

Those companies now have to account for another steep drop in metallurgical coal prices just as the coal they sell for electricity, or steam coal, is taking a similar fall. It competes with natural gas, which has fallen almost 40% from a year ago as a U.S. drilling boom inundates the market.

Prices for both metallurgical and steam coals aren’t likely to recover substantially through at least 2016, putting U.S. miners in a position where they can’t avoid losing money, said Mark Levin, analyst at BB&T Corp.

“Met prices down here, in combination with steam prices the way they are, make it impossible…for [many U.S. coal companies] to improve their balance sheets in a material way,” Mr. Levin said.

The collapse has made an especially large impact in Central Appalachia. Kentucky’s Letcher and Leslie Counties and West Virginia’s Nicholas County all saw average coal mining employment fall more than 70% from the last three months of 2011 to the first quarter of this year, researcher SNL Financial said Wednesday, citing data from the U.S. Mine Safety and Health Administration.

Since then, miners Murray Energy Corp. and Alpha Natural Resources Inc. have announced another 2,000 combined layoffs across Appalachia and the Midwest. Nicholas County has laid off police and other employees following the closing of mines that produced tax dollars for its government, The Wall Street Journal reported in April. And union leaders have had to accept lower payments for the United Mine Workers of America 1974 pension, a multiemployer plan covering some 100,000 coal-industry workers and their families and already underfunded by about $2 billion.

source: http://www.wsj.com