The economic slowdown caused by the spread of the coronavirus will likely accelerate the decline of the U.S. coal industry, according to analysts.

While the COVID-19 outbreak is impacting the entire economy, coal producers could be particularly vulnerable if reduced economic activity from a global recession squeezes electricity or steel demand. The rapidly contracting sector was already facing a rough 2020 due to weakened export demand, unfavorable economics in domestic power markets and growing pressure from sustainability-focused investors.

"A material impact on electricity demand over the next two quarters seems inescapable," said Steve Piper, director of energy research for S&P Global Market Intelligence. "If U.S. Treasury Secretary [Steven] Mnuchin's speculation of unemployment spiking to 20% comes about, even on a short-term basis, we can expect the impact to commercial and industrial demand to well more than offset any incremental gains to residential demand from quarantine activity."

Piper said year-over-year demand reductions of 5% or more seem possible in the second and third quarters as well. Utility-sector coal demand was estimated at about 125 million tons per quarter, or 500 million tons per year, in Market Intelligence's latest forecast, published March 17. The latest short-term forecast for coal from the U.S. Energy Information projected about 505 million tons of coal consumption from the utility sector in 2020, down from 590 million tons in 2019.

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An abundance of cheap natural gas and falling prices of renewable energy pushed a lot of U.S. coal plants into a vulnerable position. If overall electricity demand falls, costlier coal plants in many U.S. regions will be among the first to ratchet back production. Given that inventory levels are already high at many plants, shipments could halt and prompt some producers to shutter mines or reduce output, Piper said.

"I would say most utilities at this point in time are long inventory, slow to pick up inventory," Hallador Energy Co. President and CEO Brent Bilsland said on a March 10 earnings call during which the company announced the closure of its Carlisle mine. "I think they will be looking hard at the summer month burns and looking for gas prices to increase. So that's why we basically are assuming no additional sales this year because we just don't — I mean, there are a few buyers out there, but I think they're at prices that we would not be interested in participating."

A Moody's report released March 16 predicted the U.S. coal sector will perform worse than the broader mining and steel industry during the economic contraction caused by the coronavirus pandemic.

"If the economy slows, I do think you'll see an acceleration of mine closures," Ben Nelson, Moody's senior credit officer and lead coal analyst, told Market Intelligence. "Demand in that scenario would be weakened. Something would have to come out of the market to compensate for it."

Most of the large U.S. coal companies restructured balance sheets and improved finances through bankruptcy reorganizations in the last five years. Still, demand continued to fall, and the stock prices of coal companies were plummeting well before the coronavirus showed up on investors' radars. Given their precarious position, many coal companies lack much of a cash cushion to deal with a sharp decline in demand.

"The question is, how much worse will it get?" Nelson said. "I think what's important to understand is that this industry's financial resiliency, being that its well below investment grade, is somewhat limited to start."

Amid weakening market dynamics, Illinois Basin coal miner Foresight Energy LP noted in a recent bankruptcy declaration that the international coal market is under additional pressure due to concerns over COVID-19. Canadian miner Teck Resources Ltd. recently said it was temporarily reducing metallurgical coal production due to the global market impact of the coronavirus and high inventory levels brought on by logistical constraints.

U.S.-based Contura Energy Inc. identified the coronavirus as a risk factor for the coal industry in its earnings report for the fourth quarter of 2019, saying demand for U.S. metallurgical coal was weak already due to softness in the global economy, and the illness would likely exacerbate the problem.

"It felt like we were getting some momentum before the impact of the coronavirus became more broadly known," Contura CFO Andy Eidson said on the call. "And then, of course, everything kind of came to a halt."

Globally, there have been 191,127 confirmed cases of the virus and 7,807 deaths, according to a March 18 update from the World Health Organization. The virus has spread to countries around the world, and cases have been reported in all 50 U.S. states.

With such a dynamic situation and so many variables at play, the reality for coal companies on the ground is changing every day, according to Conor Bernstein, a spokesperson for the National Mining Association.

"Everyone is in uncharted territory, and we have to follow the lead of government experts and decision-makers," Bernstein said. "This is an immensely serious and challenging situation for all industries, including ours."