Moody’s expects the coal industry’s combined net income to decline by more than 10 percent over the next year to year and a half.
As persistent weakened demands continue to hinder the industry and regulatory conditions, the EBITDA — earnings before interest, taxes, depreciation and amortization — will continue to suffer, Moody’s Investors Service predicted late last week.
The negative shift was driven by competition from low-priced natural gas, regulatory-driven coal plant retirements, and — in the seaborne markets — slowing steel production rates and global steel overcapacity, mainly in Asian nations.
“The North American coal industry has undergone a severe long-term structural shift,” said Moody’s Vice President Anna Zubets-Anderson. “Our view is that material recovery for U.S. thermal or seaborne metallurgical coal is unlikely over the next several years.”
In January 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.
In the two years, all the largest domestic coal companies filed bankruptcy after amassing billions of dollars in debt. James River started the trend in April 2014 and then two years later, Peabody Energy, the nation’s largest coal producer, sought Chapter 11.
The coal companies remaining out of bankruptcy 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,” she said.
Moody’s, like many other analysts, believes the post-restructuring scenario envisions a smaller industry footprint but better capitalized companies to manage through the continuing industry challenges.
Even in a post-bankruptcy scenario, coal’s share of overall fuel mix in the U.S. will continue to decline, likely dropping to the mid-20 percent range within the next decade, the investors service forecast reads.