Outlook stable for global coal industry — Moody’s

MANILA, Philippines — The global coal industry will remain stable in the long term, but structural problems are likely to dampen its growth, Moody’s Investors Service said.

“Our stable outlook for the global coal industry reflects our expectation for an improvement in demand and pricing benchmarks over the next 12 to 18 months, but also significant long-term structural problems, especially in North America and Western Europe,”Moody’s said in its latest commentary.

Moody’s said an improving global economy sets the stage for some recovery in demand in the most important coal-consuming sectors, including power generation and steelmaking.

“The global coal market remains oversupplied, but an improving supply/demand balance will modestly lift coal pricing in most regions in 2021, raising coal EBITDA slightly from 2020 levels, though not to 2019 levels,” Moody’s said.

It emphasized that the demand for coal depends heavily on demand for both electric power generation and steel, which would improve along with key pricing benchmarks through 2021 from the very weak levels currently.

“But the COVID-19 pandemic will likely also limit any rebound in coal-fired power generation and accelerate the decline of coal in the US and Europe by a few years,”Moody’s said.

It added that power generation from renewables have made up most recent capacity additions in such major markets as the US, Europe, China and India, and continue to displace thermal coal generation, especially with lower power demand.

Meanwhile, Moody’s said it expects a bumpy and protracted macroeconomic recovery as global public health approaches to the pandemic begin to vary more widely.

“Countries that reverse reopening plans and reimpose lockdowns and other public-health safety measures would undercut recovery in demand for thermal and metallurgical (met) coal in those areas,”Moody’s said.

In addition, Moody’s said steelmakers would continue to struggle into 2021, especially in the high-demand Asia-Pacific coal market as headwinds hold back profitability for steelmakers despite some recovery in production.

Moreover, Moody’s said longer-term risks remain substantial beyond the horizon of its outlook. Among these risks include coal producers’ access to capital diminishing as investors move away from coal, as well as the falling energy intensity in the OECD market, with demand for electricity lagging economic growth.