The State of the States
May 2019
The United States has a strange relationship with coal. On the one hand, the commodity is lauded as the foundation of the country and its inland states—but on the other, the industry sits largely neglected by national policy, overshadowed by oil and gas amidst the nation’s recent resource boom. Even coal’s most prominent advocates generally admit that it is not really set to make a comeback in the States; its glory days are long gone. But the industry clings on, and the places where it survives provide insight into the market—both domestically and globally.

US coal production fell during 2018, largely erasing the gains it saw during 2017 and removing hopes that it would continue recovering from the crash it saw during 2016. Metallurgical coal was a bright spot amongst the industry, however, raising up from its 2016-low of an estimated 34.7Mt in exports during 2016 to 55Mt in 2018, largely on the back of high prices and low costs that made exports from a number of operations profitable. This trend may not continue, however, as several closures are expected over the next few years—including Taft Coal’s privately-owned mine and Arch Coal’s ageing Sentinel project—and AME expects overall exports to dip.



Additionally, coal exports from the US remain logistically difficult, restricting producers’ ability to perform and reliably increase their sales. Some producers, such as Contura Energy and Corsa Coal, are seeing improvements in haulage and exports that have improved their export performances, but these appear to be an exception, rather than an indication of overall improvements in the US market.

Initially, one might expect the steelmaking resurgence in the US—driven by 25% import tariffs that remain difficult to secure exemptions for—to buoy the country’s demand for coking coal. A second look, however, shows that electric arc furnace (EAF) mills—which, by their nature, consume no coking coal—make up at least 65% of US steel production capacity—compared to 6% in China and between 30-40% in many other countries. Many new US steel capacity developments being made are EAF, and as such the surge in steel production capacity increases—through both green- and brownfield projects—has not led to a corresponding leap in coking coal demand in the US.

While many thermal coal producers are experiencing issues, some—like, for example, Murray Energy—are considering a pivot towards metallurgical coal. Murray has made successful bids for three coking coal sites throughout the US, marking its first moves away from thermal coal and being one amongst many US thermal coal companies that are making the shift.

While metallurgical coal generally proves to be a better investment in the US than thermal coal, that particular distinction might not matter much when it comes to some private investors. Banks and investors are largely moving away from coal in the US, and there is evidence to suggest that, despite the vastly different uses for thermal and coking coal, internal decision makers are not discriminating between the two products—instead choosing to eschew investments in both.

Overall, companies have spoken about difficulties seen in obtaining investment for HCC projects, indicating that the US will have difficulty growing its production and exports of any kind of coal over the next several years, despite lifted margins for coal producers over Q1 and growing demand in Asia, particularly India.

The US’s own Energy Information Administration does not predict a resurgence in the coal industry, and without substantial changes to government policies that either incentivise investments or ease the export of coal, it appears likely that the country’s share of the global coking coal market will fall yet further over the next four years. As the market oversupply increases, it is expected that exports will decline, and decrease in 2020 to around 41Mt. However, the US may remain a key swing producer into the export market due to the amount of idled capacity available.