(Bloomberg) — Douglas Blackburn has been crawling in and out of the coal mines of Central Appalachia since he was a boy accompanying his father and grandfather some 50 years ago.
The only time that Blackburn, now a coal industry consultant, remembers things being this bad was in the 1990s. Back then, he estimates, almost 40 percent of the region’s mines went bankrupt.
“It’s a similar situation,” said Blackburn, who owns Blackacre LLC, a Richmond, Virginia-based consulting firm. Now, like then, the principal problem is sinking coal prices. They’ve dropped 33 percent over the past four years to levels that have made most mining companies across the Appalachia mountain region unprofitable.
To make matters worse, there’s little chance of a quick rebound in prices. That’s because idling a mine to cut output and stem losses isn’t an option for many companies. The cost of doing so — even on a temporary basis — has become so prohibitive that it can put a miner out of business fast, Blackburn and other industry analysts say.
So companies keep pulling coal out of the ground, opting to take a small, steady loss rather than one big writedown, in the hope that prices will bounce back. That, of course, is only adding to the supply glut in the U.S., the world’s second-biggest producer, and driving prices down further.
It’s become, in essence, a trap for miners.
“You have this really perverse situation where they keep producing,” James Stevenson, director of North American thermal coal at IHS Inc. in Houston, said in a telephone interview. “You’re just shoveling coal into this market that’s oversupplied.”
Companies will dig up at least 17 million tons more coal than power plants need this year, Morgan Stanley estimates. Coal is burned at the plants to generate electricity. That’s creating the latest fossil fuel glut in the U.S., joining oil and natural gas.
The fuel’s share of the electricity market has dropped to 37 percent from about half in 2007, government data show. The industry is bracing itself for the shutdown of coal-burning power plants that can’t meet new clean air rules.
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