Coal stocks have fallen sharply since the start of the year and analysts are now warning that the company could plunge back into the black as the downturn hits, despite a glut of cheap, cleaner coal and a glut in coal mines.
That could have a significant impact on U.S. coal production, the biggest industry in the country.
A report by The American Petroleum Institute and the American Public Power Association says the country’s largest coal producer, Peabody Energy, is in serious danger of being hit by a coal mine closure, while Murray Energy and Arch Coal have both been hit hard by plummeting prices.
Both companies have been struggling with lower-than-expected coal inventories and falling demand.
But the latest report from the coal industry’s largest trade group says that the biggest coal stocks in the United States, including Peabury and Arch, are in serious decline.
“We’ve seen a precipitous decline in our coal stocks,” says Doug Porter, senior vice president of the American Petroleum Association.
“This is the first time in almost a decade that we’ve seen coal stocks decline.
We’ve seen the lowest prices in years, and that’s why we’re seeing the declines.”
That has caused coal companies to lay off workers, cut back on production and lay off employees and suppliers.
The industry is also struggling with the downturn in demand from China, which is expected to be the top source of new coal production by 2020, but is likely to struggle even further because of a glut.
The APA report says the industry is on track for a loss of $1.6 billion this year, or about 3 percent of its total annual profits.
The decline in coal stocks has been especially noticeable in the past few months, as the price of coal has been falling and coal companies are looking to sell off assets or restructure to keep up with lower demand.
In February, Peacock Resources, a coal company, reported a $4.2 billion loss for the year.
Peaboy Resources, the largest coal miner in Utah, reported that its net loss in the first quarter of the current year was $3.4 billion.
The companies are also trying to raise capital to help them pay for their projects, including a $100 million loan to help fund the acquisition of two coal mines in Wyoming.
That deal will see Peaboys own assets in those mines.
“There’s a lot of risk in all of this,” Porter said.
“The fact that they’ve got to sell their assets is going to be huge.”
In addition to the coal stocks, Porter said the industry has seen a slowdown in natural gas production.
In January, the National Association of Manufacturers issued a report saying that natural gas is on pace to outstrip coal in terms of its economic impact in the coming years.
Natural gas production has slowed in recent years and the industry continues to see low prices.
In March, the Federal Energy Regulatory Commission said that the United State was on track to have more than 2,200 billion cubic feet of natural gas in its national gas supply pool by 2021.
That figure is expected only to increase as more and more natural gas-producing states add more and gas-fired power plants come online.
The APA study estimates that natural energy supply would shrink by nearly 50 percent if Peabood and Arch coal were shut down, which would cut production by nearly half.
The report notes that coal has a longer track record of decline than natural gas, with the average coal plant operating more than 80 years, compared with only about 20 years for natural gas.
Porter says the outlook for the coal sector is bleak.
“It’s going to take some serious capital to keep them afloat,” Porter says.
“And that means the miners are going to have to be more aggressive.”