June 22, 2017 - The coal industry is “too fragmented” to command pricing power and is in need of consolidation, according to a new note from Seaport Global Securities LLC analysts.

Analyst Mark Levin wrote in a June 20 note that the industry has “too many suppliers chasing too few tons.” The report cites a recent claim that Duke Energy Corp. received about 50 bids from suppliers across various regions for a collective 8 million tons of coal to be delivered in the second half of 2017. Even if that is exaggerated by 20, it is clear that utilities have all the bargaining leverage, the note said.

“Prices reflect it: mid $30s for the [Illinois Basin], low-to-mid $40s for [the Northern Appalachia Basin], and ~$11/ ton for the [Powder River Basin],” Levin wrote. “Keep in mind this is a year in which export volumes, both met and steam, are ripping. What would happen if those exported tons were in the domestic market? Moreover, natural gas prices have been above $3/MMBtu for almost the entire year, and coal consumption is up 5% through March. Where would thermal coal prices be if the natural gas price was $2 or $2.50? The industry needs consolidation that rationalizes production.”

Levin said the potential solution to answer the “imperative” issue is to create “several mega companies.”