Industry Trend Analysis - US Election: Upside Risk To Metal Sector, Artificial Boost To Mining - DEC 2016

BMI View : While the incoming Trump administration and a Republican-controlled Congress pose a clear upside risk to our US coal production and metal demand outlooks, we expect the country ' s coal industry to remain in a long-term decline due to the uncertainty surrounding deregulation and significant external market headwinds.

Republican candidate Donald Trump's surprise victory, along with the Republican Party retaining control of both houses of Congress, will lend some respite to the US mining sector over the coming quarters ( see ' Trump Triumphs: Winners And Losers In Core Industries ' , November 9). Namely, rolling back the Clean Power Plan and lifting the ban on leasing federal lands to coal mines will reduce already elevated operating costs and may encourage project development.

Nonetheless, we expect the US coal industry to remain in a structural downtrend as any alleviation from deregulation will be offset by poor global market conditions ( see ' US Presidential Election: Downbeat Mining Outlook Regardless Of Outcome ' , August 22). Even without higher air quality standards and other policies identified as targeting coal, the increasing availability and competitiveness of both natural gas and renewable energy will continue to reduce coal's role in US power generation, eroding demand for domestic production which also cannot compete with cheap Asian coal ( see ' Thermal Coal: Rebound Is Unsustainable', October 31) . Furthermore, Trump's promise to return coal jobs will prove challenging, as US miners remain committed to reducing debt loads and paring down operations, with many still under bankruptcy protection. We are maintaining our forecast for US coal production to contract by an annual average of 2.5% over 2017-2020, with the greatest upside potential stemming from the current coal price rally, rather than the outcome of the US election.

Clearer Boost For Metals On Infrastructure Plan
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Note: November 2015 = 100. Source: Bloomberg

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