June 6 - U.S. coal producers have suffered some hits to their credit quality this year, in large part because of an unusually warm winter and electricity generators switching to natural gas from coal because of low gas prices, Standard & Poor’s Ratings Services said today. In light of the headwinds in the industry, we answered some frequently asked questions about the weakening in industry credit fundamentals and our recent rating actions in a credit FAQ titled, “U.S. Coal Producers Face Substantial Headwinds, Including High Inventories And Low Natural Gas Prices,” published today on RatingsDirect.
Market conditions for steam coal, which power plants use to generate electricity, rapidly deteriorated in the first quarter of 2012 because of abnormally warm weather in the East and Midwest, along with still-weak industrial demand, which has resulted in large and growing coal inventories at power plants. Low natural gas prices also contributed to weakness in the industry.
We believe conditions will continue to be weak into next year, and lower-cost, better-capitalized operators will prevail, in our view. Diversification across basins, products, and geography should help. (Watch the related CreditMatters TV segment, titled “U.S. Coal Companies Struggle To Maintain Credit Quality Amid Warm Weather And Weak Gas Prices,” dated June 6, 2012.)