 |
| Production and employment numbers have not kept pace with increased coal demand, due in part to a tight labor market, according to analysts. |
The number of workers employed at U.S. coal mines was steady during the third quarter, barely budging as producers struggled to keep up with a rebound in coal demand tied to surging natural gas prices.
The average number of employees at the country's coal mines rose 2.5% quarter over quarter while falling 3.2% year over year, according to data from the U.S. Mine Safety and Health Administration. The number of U.S. coal workers has declined dramatically over the past decade as domestic demand for coal dissipated. Employment dropped from an average of 87,770 workers in the third quarter of 2012 to 39,902 employees in the third quarter of 2021, a 54.5% change. However, a brief resurgence in coal demand could slow the downward trend.
Third-quarter U.S. coal production reached 148.2 million tons, up from the 135.9 million tons reported in the third quarter of 2020. But even with a return in appetite for coal, output and employment numbers have not kept pace with demand due to a tight labor market, capital constraints and uncertainty over long-term demand projections as the world attempts to limit carbon emissions, according to analysts.
S&P Global Market Intelligence forecasts coal production will increase 12.7% year over year in 2021.
"Producers may be hard-pressed to keep up with demand, forcing coal plant inventories to remain low and pricing pressure to remain high," Steve Piper, director of energy research at Market Intelligence, said in a Nov. 9 report.
But the resurgence in coal production and corresponding jobs will likely not stick, as international commitments signed at the recent climate summit in Scotland and the Biden administration's efforts to wean the U.S. off coal bode poorly for the industry's future.
"After 2022, announced coal retirements combined with declining natural gas prices are projected to push coal generation demand gradually lower through 2030," Piper said. "The overall coal market — domestic demand and exports — is projected to decline by a modest 48 million tons between 2020 and 2027."
Western mines hold on
Western coal producers led the way in third-quarter output volumes and employment gains, with coal production climbing and far exceeding the 2020 pandemic-driven production slump. Overall employment held strong at an average of 4,564 employees during the September quarter, with an average of 210 more employees than the previous quarter.
Employment at one of the largest coal mines in the Powder River Basin, North Antelope Rochelle in Wyoming, averaged 973 workers during the third quarter, slightly up quarter over quarter from an average of 951 workers. The mine is owned by St. Louis-headquartered Peabody Energy Corp.
"Availability of labor impacted production at several of our U.S. mines this quarter, but we see this improving through programs that we have put in place," James Grech, president and CEO of Peabody Energy, said during an Oct. 28 earnings call. The company did not respond to a request for comment.
The neighboring Black Thunder mine in Wyoming produced the most coal in the third quarter at 17.7 million tons, showing a dramatic 26.5% surge in production from the prior quarter. But employment jumped to an average of 945 employees from 881 employees quarter over quarter. The mine is owned by St. Louis-headquartered Arch Resources Inc. and faces a potential early closure as the company pivots away from thermal coal in the Western U.S. to metallurgical coal out east. The company did not respond to a request for comment.
Arch Resources has also faced labor market issues, COO John Drexler said Oct. 26 during an earnings call.
"We've heard stories where someone can go out and work for the cable company ... and make equivalent money to what they're making underground or even drive a bus, a school bus," Drexler said. "Those are the types of stories, anecdotally, we're hearing. Those didn't use to be challenges or opportunities for someone to step out and make that kind of money."
The U.S. Energy Information Administration expects coal demand in the electric power sector to increase 18% year over year in 2021.
However, amid skyrocketing natural gas prices, utilities have not turned back to thermal coal at the rate analysts initially forecast, according to a Nov. 4 report by the EIA.
"The lower price responsiveness of coal for electricity generation, which is likely the result of constraints on coal supply and low coal stocks, is contributing to upward pressure on natural gas prices," the report said.
Hope from steel demand
East of the Mississippi River, coal companies ramped up production during the September quarter in response to rising demand fueled by high gas prices and favorable export markets. Combined employment averages in Northern Appalachia, Central Appalachia and the Illinois Basin during the third quarter increased by 6.6% year over year to 51,289 workers.
"Overall, eastern coal demand is forecast to grow 43 million tons from 2020 to 2024, considering both export growth and increased coal utilization against higher natural gas prices," Piper said.
Coal production in Northern Appalachia and the Illinois Basin have been declining throughout 2021, while overall coal output in Central Appalachia has slightly increased from 13.6 million tons in the first quarter to 13.8 million tons in the third quarter. A bullish global steel market and the passage of the U.S. infrastructure bill in recent months have spurred some hope in the metallurgical coal industry. Metallurgical coal is a feedstock option for making steel.
However, the metallurgical coal industry in the U.S. remains relatively small compared to global production, and most of the commodity is exported from the country. Technological advancements have also led many domestic steel producers to use scrap as a raw material over coal.
New steel mills built in the U.S. are electric arc furnaces and use scrap as the main raw material, Michael Corelli, senior vice president at Moody's Investors Service, said in an interview. "We don't anticipate an increase in steel consumption domestically will lead to an increase in metallurgical coal consumption unless existing producers with other types of steel facilities just increase their utilization."
But global consumption of metallurgical coal is not going away anytime soon, with several countries still constructing steel mills that rely on coal, Corelli said.
The EIA expects U.S. coal exports to increase by 29% year over year on the back of global demand.