More US coal production cuts may be on the horizon, setting up thermal coal supply to potentially be lower than demand starting in late 2025.
US coal producers have been scaling back mining operations since at least mid-2023 in response to lackluster demand. Market participants are continuing to contend with elevated power plant inventories following relatively mild winters and more competitive natural gas prices.
Some producers are signaling more production cuts are coming in the next few months. As a result, the US Energy Information Administration (EIA) recently forecast the country's coal output in 2025 would fall by 7.2pc from this year to 472.3mn short tons (428.5mn metric tonnes), the lowest level in agency data going back to 1949.
But US coal-fired generation and coal consumption is expected to grow modestly next year, to 643.7bn kWh and 409.4mn st, respectively, from 641.6bn kWh and 406mn st in 2024, because of greater electricity and industrial demand. Coal consumption for the electric power sector alone is expected to rise to 371.5mn st from an estimated 369.4mn st in 2024, EIA data show.
Generators are expected to draw from their existing coal inventories for the majority of the year to meet the slightly higher electricity demand, potentially bringing power plant stockpiles down to more normal levels. Coal producers also are expected to have less inventory at mines and loadout facilities as volumes that had been deferred to 2025 are delivered.
If the inventory withdrawals and expected slight increase in domestic consumption are coupled with higher export market prices and demand, "there could be an impetus for a slight ramp-up in domestic production, but currently, that prospect does not appear to be visibly on the horizon", EIA chief economist Jonathan Church said.
For example, Argus assessments for calendar year 2025 API 2 coal swaps averaged $112.85/t from 1-24 December, compared with $104.19/t for all of December last year.
The response from coal producers to any improvement in demand could be uneven, which could constrict competition and boost prices.
While larger producers with longwall mining equipment, primarily in northern Appalachia and the Illinois basin, can somewhat efficiently resume or increase production, other companies may struggle to ramp up operations.
Producers also may not have the financial support to increase coal output. A number of market participants expect smaller producers with higher-cost operations to be forced out of business as major banks continue to pull back on lending money to coal mining companies.
In the nearer term, recent or planned coal mine closures could further limit supply. Alliance Resource Partners said in November that it intends to retire its central Appalachian coal-producing MC Mining complex in Kentucky, and the company has already cut operations to two of its four production units. Earlier in 2024, American Consolidated Natural Resources closed its Pride Mine in western Kentucky and Hallador Energy idled two small Indiana mines in February.
Other producers have scaled back operations but kept mines open. Coal miners worked an average 45.5 hours/wk in October when not adjusted for seasonal factors, preliminary figures from the US Labor Department show. A year earlier, coal miners averaged 48.3 hours/wk.
Producers also have to contend with an uncertain outlook beyond 2025, including an expected shift in environmental policies under president-elect Donald Trump, how new data centers will affect electricity demand, and timelines for installing new generation and transmission upgrades.
Alliant Energy, Vistra Energy, Duke Energy and Louisville Gas & Electric and Kentucky Utilities are among utilities that recently announced plans to potentially delay retiring coal-fired generating units or plans to remodel coal units to co-fired natural gas and coal to try to meet load growth projections for the next few years. This could keep coal-fired generation and demand at least somewhat stable, but it may not provid long-term support.
"To have increased coal demand, you would have to have load growth outpacing new supply," said Robert Godby, associate professor in the economics department at the University of Wyoming. He and others expect new renewable generation and transmission projects to eventually accommodate projected electricity demand growth.
Increased load growth will be "at best just a reprieve from the ongoing downward trend in coal production and coal demand", Godby said.
As such, producers may continue to try to limit output in 2025, which could partially raise domestic prices from current levels that straddle the line of profitability for many coal mining companies. But the increases will likely be modest as alternative energy sources are expected to continue to suppress demand for coal generation.
