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Pricing Problems Partly to Blame for Eastern Kentucky Coal's Woes

Kentucky’s latest quarterly coal report shows new recent lows in the state’s coal employment and production.

During the third quarter of 2015, Kentucky’s mines employed only 9,356 workers — a more than 50 percent decline from this quarter in 2011. Coal production is also at the lowest point since the 1960s.

The bulk of the job and production losses have been in Eastern Kentucky. And part of the reason for that is money.

For the first time, the Energy and Environment Cabinet has included the fluctuations in the average processed and delivered prices of coal in the quarterly coal report. Eastern Kentucky coal is at a recent low — it’s bringing only $70.91 per ton when delivered to the end user. That’s $20 lower than it was fetching during this quarter of 2011.

IHS Global Insight coal analyst James Stevenson said part of the reason behind the low prices is too much supply.

“We have a very over-supplied market,” he said. “Utilities have high stockpiles. When their stockpiles are high, they buy less coal than they need to burn.”

Stevenson said he doesn’t expect coal prices to rebound until late 2016 or early 2017 — bad news for coal operators trying to stay in business. But the challenges facing Eastern Kentucky are probably longer term problems.

“That is the struggle of the basin,” Stevenson said.

He said Central Appalachian coal — the basin that includes Eastern Kentucky — is in a conundrum. It's facing competition from natural gas, as well as having to comply with new environmental regulations. It's also expensive to mine coal there, and coal has to sell for a high enough price for operators to turn a profit.

But if it’s too expensive, power plants will consider switching to cheaper coal. Some of that will benefit Western Kentucky coal, which is part of the Illinois Basin and is typically less expensive to mine.

Stevenson said some operators are considering a switch to cheaper mining techniques.

“The traditional sort of Central Appalachian strip mining operations, it’s difficult to see a world where those guys are in the money,” he said. “And the fact is that our demand outlook for Central Appalachian thermal coal is in decline.”

Delivered coal prices for Western Kentucky coal have held fairly steady over the past few years. It is currently averaging $57.30 per ton.


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