No respite for coal and its producers

Wave of bankruptcies are looming in the horizon as the industry faces breakdown.

Several factors -

• High debt - Running a commodity production is a capital intensive business with high labor cost along with machineries. Lot many companies have taken debt to fund new projects and costlier mining with ultralow interest rates in US. Now as the prospect of a rate hike looms ahead, these burdens are going to be heavier.

• Demand slack in US - For years, US companies have been reducing their use of coal. Coal producers heavily depend on Steel Industry which yet to see a turnaround. This year electricity producing companies will further reduce their dependence on Coal and oil and shift to other resources like renewables.

• Shrinking market - Coal's share in global energy consumption is getting reduced since 1930s, however in recent time the trend got faster with arrival of cheap shale gas. World has also taken a vow to reduce greenhouse gas and for the first time in 2014, world's carbon emission stayed at the same level that of 2013, thanks to increased usage of Natural gas and renewables.

• China - Coal producers betted heavily on China's consumption that remained robust from 2000-2009. However since then rapid slowdown in consumption has taken a toll on producers. China used 2.9% less in 2014 from a year ago. Moreover China has taken measures to protect its domestic coal producers that saw a 22% decline in imports in 2014 YoY.

Coal prices are trading less than $50/ton lowest in six years. However further fall can't be ruled out.