Demand for thermal coal (coal used to generate electricity) has already been in the toilet for years as natural gas and renewable energy have become cheaper with the added benefit of being more environmentally friendly, but demand for metallurgical coal (coal used to make steel) has remained relatively healthy.
That is until Trump's trade war.
Demand for metallurgical coal or "met coal" is declining and prices have dropped by over 22 percent in the last several months because Trump's trade war has depressed manufacturing and construction particularly in China.
“If you’re in the coal business, these are the times that try you,” Randy Atkins, chairman of Ramaco Resources Inc., said on a conference call Wednesday. “The thermal coal market has pretty much dropped off the shelf. Even met coal benchmark prices that have held pretty steady at reasonably strong levels over the past year have now dropped.”
Ramaco, which produces met coal almost exclusively, attributes falling prices to uncertainties in the Chinese market, especially over import restrictions.
Peabody, the biggest U.S. coal company, says the issues in the met coal market are broader. Prices have “eased largely due to the global concerns around trade and economic growth,” Chief Executive Officer Glenn Kellow said during the St. Louis-based company’s second-quarter earnings call last month.
Industry sources who spoke to Bloomberg say they intend to make up for their losses by increasing production of metallurgical coal during the second half of year, but that makes no apparent sense to me as there's no reason to think that demand for it will recover.
Their plans seem to be based on the assumption that prices have bottomed out, demand will return, and prices will rise as a result -- but that is apparently based on the idea that Trump's trade will end at some point soon.
With the global economy headed toward recession, and with Trump's trade war only escalating in the coming months, where do they expect to find demand for coal? Increasing production will only increase supply with no corresponding demand for it, leading to even lower prices.
But what do I know? I'm not a coal baron who believes in supply-side economics.