Coal Demand Doldrums Put Damper on $11.6 Billion in Capital Expenditure Plans at U.S. Mines

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Researched by Industrial Info Resources (Sugar Land, Texas)--Inexpensive natural gas, environmental regulations, reduced energy usage and high coal inventories at power plants are all factors that have had a negative impact on coal demand fundamentals in 2012. These factors are starting to impact capital expenditures at U.S. coal mines as a number of mine closures, production reductions and capital expenditure postponements have been announced by the nation's leading coal mining companies including Peabody Energy Corporation (NYSE:BTU) (St. Louis, Missouri), Arch Coal Incorporated (NYSE:ACI) (St. Louis), Alpha Natural Resources Incorporated (NYSE:ANR) (Bristol, Virginia) and CONSOL Energy Incorporated (NYSE:CNX) (Pittsburgh, Pennsylvania).

CONSOL Energy announced on Friday that it will idle its Fola operations near Bickmore, West Virginia. The idling will impact 318 employees at the end of the August, when surface mining will cease. The Fola operations include surface and underground mines, as well as the Peachorchard Preparation Plant. CONSOL is developing several new mines in the area, including the BF Coalburg underground mine, Lick Branch No. 3 mine, and the Webb Branch surface mine. All of these projects are in jeopardy of being cancelled.

Industrial Info is tracking more than 125 major coal mining projects in the U.S., representing a total investment of $11.6 billion. These projects range in the length of the development timeline, from the early planning stage to those under construction. The majority of these projects are located at coal basins in Illinois, Pennsylvania and West Virginia.

Citing a weak economy and low natural gas prices, Peabody Energy announced last week plans to reduce capital expenditures for coal mining projects by $200 million, down to somewhere between $1 billion and $1.2 billion. This remains a healthy amount of investment.

Peabody Energy has about $762 million worth of active projects in the U.S., including an expansion of the company's the Gateway underground mine in Coulterville, Illinois. It's unclear at this time if the recently announced cutbacks will impact the $175 million Gateway mine expansion, which is scheduled to begin construction in August 2012.

While the short-term outlook for the U.S. coal mining industry is poor, the long-term outlook is quite positive, especially when worldwide demand for coal is considered. Coal exports could break historic records as worldwide demand for both thermal and metallurgical coal continues to grow.

U.S. miners are cutting back not only in capital expenditures, but in operational production as well, as low demand is impacting the bottom line. Arch Coal said it will idle three mining complexes and cut 750 jobs in Kentucky, Virginia and West Virginia.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.