US coal industry sees limited 2012 upside - report
Softer export markets and natural gas displacement will outweigh benefits of lower stocks and consolidation for US coal producers in 2012, according to a new report published by credit-watch firm Fitch Ratings.
Longer-term, US producers should benefit from exposure to metallurgical coal, which is in tight supply, and export markets, where demand is growing, according to the report.
The domestic market will favor low cost and/or low sulfur production over the long haul, the firm said.
Domestic steam coal demand is in slow decline, and Fitch said it expects supply to remain disciplined. Price, volume, and cost visibility remain relatively high for domestic steam coal.
Imports are muted by the weak dollar, and inventories have been reduced to nearly normal levels following this summer's coal burn and supply disruption from floods.
Operating costs are escalating while both deteriorating geological conditions and increased regulatory compliance hinder productivity, the firm said. As such, Fitch does not expect relief from cost headwinds over the next 12 months.
Well-capitalized coal producers exhibited strong spending discipline and liquidity control throughout the global financial crisis and emerged from the recession with very strong balance sheets relative to their ratings, according to the report.
Acquisitions to date have not stretched capital structures or liquidity, and Fitch said it expects this to remain the case as a result of greater risk aversion in the financial markets.
Resilient cash flows and solid balance sheets will sustain the sector's stable outlook.
The full report, titled '2012 Outlook: U.S. Coal Producers (Limited Upside)', is available on the Fitch website by clicking here.
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