Moody’s: Coal industry struggles with structural decline; outlook negative

As persistent weakness in market and regulatory conditions continues, the outlook for the North American coal sector will remain negative in the coming year, according to Moody’s Investors Service.

Moody’s says it expects the coal industry’s combined EBITDA to decline by over 10 percent in the next 10 to 12 months.

The downward shift has been driven by competition from low-priced natural gas, regulatory-driven coal plant retirements, and – in the seaborne markets – by slowing steel production rates and global steel overcapacity.

“The North American coal industry has undergone a severe long-term structural shift,” says Moody’s Vice President Anna Zubets-Anderson. “Our view is that material recovery for US thermal or seaborne metallurgical coal is unlikely over the next several years.”

On January 21, 2016, Moody’s placed 55 companies in the base metal, precious metal, iron ore and coal industries rated between A1 and B3 under review for downgrade based on the belief that a severe decline in the mining industry represents a fundamental shift in the operating environment, rather than a cyclical downturn.

“Most of the major US coal producers have filed for Chapter 11 bankruptcy protection over the last two years and the remaining companies are mostly differentiated by niche markets, good contracted positions, or a different business model,” said Zubets-Anderson. “Still, even those ratings remain low reflecting the overall industry headwinds.”

The post-restructuring scenario envisions a smaller industry footprint but better capitalized companies to manage through the continuing industry challenges.

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