The global coal market has been depressed for the last three years. The reason for weakness in the coal market is a slowdown in China, as well as cheaper natural gas in the U.S
Coal has also been under pressure from policymakers across the globe as they look to tackle climate change. For example, in China, which has been a heavy consumer of coal, the government has now announced several measures to cut reliance on coal and tackle pollution problems in cities like Beijing. China is looking to reduce the share of coal in its energy mix over the next decade. Also, a slowdown in the construction sector has hurt demand for met coal, which is a key ingredient in steelmaking.
Another reason for the coal market’s weakness is cheap natural gas in the U.S. As natural gas prices plummeted to record low levels in 2011, several utilities began replacing coal with natural gas to generate electricity. In fact, at one stage, the share of natural gas and coal was nearly equal in 2012. This was the first time ever when natural gas’s share in electricity generation matched that of coal.
Given all these factors, it is not surprising that the outlook for coal miners is very bearish. In fact, there are concerns that several miners would file for bankruptcy in the coming years if the market doesn’t rebound. However, the outlook for the coal market is not as bad as the weak performance of coal mining stocks suggest.
Although globally, there is pressure to reduce reliance on coal, countries such as India will continue to burn coal as they look to improve their infrastructure and meet their energy needs. Coal remains the cheapest source of energy generation for developing countries like India. Also, Chinese policymakers have eased monetary policy considerably in the past six months, which could lead to a recovery in the construction sector. This could boost the met coal market.
Having said that, coal miners will continue to face the heat at least for the next year or so. Earlier today, Corsa Coal Corp. (TSX-Venture:CSO), a Toronto-based premium quality met and thermal coal producer, reported its financial results for the quarter ended March 31, 2015. For the quarter, the company posted positive adjusted EBITDA at its North Appalachia and Central Appalachia divisions despite these challenging times for the coal market.
The company also maintained its guidance for the full year, with total sales volume expected to be between 1,670,000 and 1,810,000 tons. Shares have been on a steady decline for almost a year, so the hope is that there is a light at the end of the tunnel for this Company as well as other coal producers.
