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US Coal Outlook Stays Negative amid Declining Earnings - Moody's

Coal News - Published on Thu, 23 Jan 2020

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Moody's said that coal export volumes will likely continue to fall in 2020, leading to significant deterioration in earnings and cash flow generation for US coal producers. Investors' increasing ESG-related concerns could also limit US coal companies' access to capital and prompt a shift toward more conservative financial policies in the year ahead. Moody's revised its outlook on the industry to negative from stable in August 2019. Moody's Vice President said "We expect that EBITDA will fall by about one-third across our rated portfolio of US-based coal companies, including some met coal-driven producers that could fall more significantly.”

Coal pricing remains weak in early 2020, with no clear catalyst for improvement after prices fell sharply in 2019. Prices for metallurgical coal fell meaningfully in most domestic coal basins and key export markets. Prices for metallurgical coal pricing used in steelmaking, although more favorable, are also likely to be weak in 2020, further constraining cash flow and EBITDA generation.

As investors increasingly shift away from the coal industry due to environmental concerns, financing costs for coal companies will increase over time, especially in bond markets. This could prompt coal producers' boards to reassess the appropriate levels and mixes of debt in the coal producers' capital structures.

Moody's says that lower-rated US coal producers are more vulnerable to the effects of the industry decline and will have limited ability to repay debt as their credit stress worsens in 2020.

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Posted By : Arun Huidrom on Thu, 23 Jan 2020
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