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James Stafford is the editor of Oilprice.com.
The coal industry is in uncharted territory. After decades of strong financial numbers and dominance in the electric power sector, coal producers are starting to fall apart faster than anyone could have anticipated. SNL Financial has produced some jaw dropping data on the quickly deteriorating coal industry, with a horrific performance in the second quarter.
The U.S. coal mining sector has exhibited an unprecedented wave of turmoil in just the last few weeks.
Walter Energy, an Alabama coal miner, announced on July 15 that it is filing for bankruptcy. Senior lenders will see their debt turned into equity, and if the company cannot turn the ship around, it will more or less sell off all of its assets. “In the face of ongoing depressed conditions in the market for met coal, we must do what is necessary to adapt to the new reality in our industry,” Walter Energy’s CEO Walt Scheller said in a press release.
Alpha Natural Resources, a top producer of metallurgical coal (used for steelmaking), was delisted from the New York Stock Exchange because its share price was “abnormally low.” The company is eyeing the possibility of declaring bankruptcy protection.
Arch Coal has seen its share price crater to similar depths that Alpha Natural Resources saw before it was delisted. Arch Coal pulled off a one-for-ten reverse stock split in an effort to avoid the same delisting fate as its peer. Essentially, the move to reduce the number of shares is intended to boost the share price, and it will take effect on July 27. But moves on paper won’t change the underlying fundamentals.
Coal prices are down 70 percent from four years ago. The U.S. is shifting towards natural gas in the electric power sector, and weak demand for coal is leading to mine closures. The Obama administration is also trying to reduce the country’s greenhouse gas emissions, and a litany of regulations intended to meet that objective are cutting down coal at the knees.
As the dirtiest source of electricity, coal is in the crosshairs. The EPA is working hard to ensure that its Clean Power Plan, which puts limits on carbon emissions at the nation’s power plants, is finished before the end of Obama’s term.
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