Industry Trend Analysis - Return To Growth In 2017, But Long-Term Outlook Still Bleak - FEB 2017

BMI View: We have revised upward our US coal production growth outlook in 2017 and 2018, on the back of the country's coal demand outlook and rising metallurgical coal prices over the coming quarters. However, competitive natural gas prices, subdued thermal coal prices and rising local opposition to coal projects will prevent a reversal in the structural decline of the industry .

As the US coal industry enters a period of respite, supported by strong metallurgical coal prices and an expected increase in US thermal coal demand, we have revised up the country's production outlook. An uptick in coal use in the domestic electricity generation mix will tighten the US market in the near term and support muted coal production growth in 2017 in 2018 ( see ' Coal Power Is Down But Not Out As Gas Gains Ground ' , August 23 2016). We have revised up the US coal production growth forecast to 1.5% and 2.0% in 2017 and 2018, respectively, from a previous forecast for a 4.0% and 3.0% contraction.

The spike in metallurgical coal prices in particular will encourage project development. In December, private equity-backed miner Ramaco Resources filed for an initial public offering, looking to fund development at four mines in Pennsylvania, Wyoming and West Virginia. Also in December, Rosebud Mining reportedly began working to reopen the Cresson metallurgical mine in Pennsylvania. In Q316, Corsa Coal provided an update on the Acosta metallurgical coal project in Pennsylvania. The firm expects the mine to produce 340 thousand tonnes (kt) annually, with production starting in Q217 and ramping up over the year.

Temporary Weight Lifted From Miners
Thermal (RHS) & Coking (LHS) Coal Prices (USD/tonne)
Note: Australia Newcastle Thermal Coal & SBB Premium Hard Coking Coal Australia Export. Source: Bloomberg

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