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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
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.
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Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
MD - Corporate Finance
Corporate Finance Group
Moody's: US coal industry outlook turns negative on weak power demand
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
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