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Moody's: US coal industry outlook turns negative on weak power demand

Global Credit Research - 08 May 2012

New York, May 08, 2012 -- Moody's Investors Service has changed its outlook for the fundamentals of the US coal industry to negative, as persistently low natural gas prices continue to reduce the electricity sector's demand for coal. Moody's expects operating margins for coal producers to deteriorate this year, and for prices for US coal deliveries to decline at least 5% in 2013.

Moody's also expects that some of the decline in US coal consumption will be permanent.

"A regulatory environment that puts coal at a disadvantage, along with low natural gas prices, have led many utilities to increase or accelerate their scheduled coal-plant retirements," says Moody's Vice President -- Senior Analyst Anna Zubets-Anderson, author of the Industry Outlook "Coal Outlook Negative as Producers Grapple With Weak Prices and Drop in Power Demand."

"In addition, newly proposed US carbon dioxide regulations would effectively prohibit new coal plants by requiring new projects to adopt technology that is not yet economically feasible," says Zubets-Anderson.

Moody's expects US coal demand from power plants to drop by 100 million tons by 2020.

More immediately, operating margins for the coal producers will decrease this year as cash costs increase amid lower delivery volumes. Because most US producers have contracts that sell coal at prices above the spot market price, the prices at which they sell coal will not generally drop until next year, when the contracts expire. During 2013, Moody's expects averaged delivered prices to decline by at least 5% from 2012 levels.

Moody's negative outlook for the US coal industry reflects its expectations that the US electric sector's coal consumption will decline by at least 5% over the next 12-18 months. If Moody's expected power consumption to grow by 0%-5% year-over-year over the next 12-18 months, the agency could change the outlook to stable. If the US power sector's coal consumption looked set to grow by more than 5%, the outlook for the coal sector could change to positive, Moody's said.

Moody's industry outlooks reflect its expectations for the fundamental business conditions in the industry over the next 12 to 18 months. For more information, please see the report at http://www.moodys.com/research/Outlook-Update-US-Coal-Industry-Coal-Outlook-Negative-as-Producers--PBC_141834.

***

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

Anna Zubets-Anderson
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Brian Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's: US coal industry outlook turns negative on weak power demand
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