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Analysts believe 2015 poised to be coal’s worst year



The coal industry’s woes are likely to continue throughout the year with companies remaining in the red, according to a new round of mining industry earnings reports, says Environment and Energy News.

E&E reporter Manuel Quinones reports that Alpha Natural Resources Inc., which has operations in Letcher County, reported a net loss of $122 million for the last three months of 2014. And in recent weeks, Arch Coal Inc. reported a $371 million net loss and Peabody Energy Corp. a $514 million net loss, both for the fourth quarter.

Quinones writes that James Stevenson, director of North American coal for the research organization IHS Energy, said 2015 may be the “worst year in years probably.”

Coal mining companies have been scrambling for several years now to reduce costs and restructure operations to weather the ongoing downturn, E&E reports.

Late last month, Alpha, which has already gone through several rounds of layoffs, said it would idle more mines in West Virginia, which will affect roughly 100 workers.

Alpha CEO Kevin Crutchfield said, “Against this backdrop, we continue to adjust our production base and cost structure to align with current market conditions.”

Arch touted the elimination of “nonstrategic assets” and said in its earnings report that it had decided to freeze employee pension plan benefits, Quinones reports.

According to Quinones, some analysts have been looking at Arch with particular concern. Tom Sanzillo, Institute for Energy Economics and Financial Analysis finance director, who has released numerous reports critical of financial issues related to the coal industry, described a company in trouble.

“Arch executives say they expect coal markets this year to perform about the same as they did last year, which was a brutal 12 months for U.S. coal producers,” Sanzillo wrote last week.

“This admission — that 2015 will bring no upturn — suggests that whatever initiatives Arch pursues this year will be geared solely at reducing losses,” he wrote. “The company is in hunker-downand survive mode.”

E&E reports that even though analysts expect coal to remain a significant part of the country’s energy portfolio, Arch said it predicts U. S. coal use to drop by more than 50 million tons this year.

Output in the Central Appalachia basin, the hardest hit of the ongoing downturn, would fall to an “unprecedented” 100 million tons in 2015, Arch said.

“Our strong cost performance in the Appalachian segment, underscored by an outstanding operational quarter at our Leer mine,” CEO John Eaves said, “demonstrates that our strategy to control costs, preserve liquidity and reduce capital outlays is effectively mitigating some of the industrywide headwinds.”

Quinones writes that the mining industry had been relying on exports to help pick up demand. But economic conditions mean there continues to be a global glut of coal, particularly the steel-producing kind.

A recent analysis by the firm Wood Mackenzie Ltd. pointed to uncertainties in China’s economy, plus its efforts at reducing coal’s environmental impacts. China is the world’s top coal importer.

Alpha said in its earnings report that a slowing of production increases in Australia could boost its own fortunes. Still, Wood Mackenzie said that country would be the “standout competitor.” Peabody has mining operations in Australia.

“This trend is likely to continue thanks to a continued strong operating performance plus currency depreciation,” said analyst Rory Simington. “On the other hand, U.S. suppliers, many of which exhibit high costs, will not see the cost relief that currency devaluation brings to Australia.”

Pro-coal advocates and policymakers have been scrambling to help the industry, Quinones reports. Today, the World Coal Association called for more spending by governments on technologies to help coal burn cleaner.

In West Virginia, lawmakers have been working on loosening regulations to help the industry better compete, including renewable fuel standards. A new West Virginia University study found that encouraging state utilities to use more coal would support almost 200 jobs, according to the Associated Press.

Stevenson of IHS Energy said producers in Wyoming and Montana’s Powder River Basin are likely to do the best this year, even seeing some rebound. He said the industry as a whole may see some improvement next year but probably not full recovery.

That’s why companies are reminding investors and policymakers of what they consider to be an undisputed fact — that coal will continue growing globally as developing countries look to address energy shortfalls.



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