June 14, 2019 - Industry analysts told S&P Global Market Intelligence a projected cooler summer across much of the U.S. could challenge an already struggling coal industry by muting domestic utility demand for the commodity. Coupled with weakening European and Asian thermal coal pricing, a cooler summer resulting in lower energy demand could weigh on the U.S. coal sector, the analysts said.

“Every year is important for this industry,” said B. Riley FBR analyst Lucas Pipes. “I think it’s probably fair to say that given the weakness in the seaborne market at this time, stronger domestic demand is maybe more important than let’s say last year because if the export market should continue to stay challenging at current pricing levels, clearly producers have to look more towards the domestic market to balance their sales books.”

Todd Crawford, senior meteorologist for IBM Business’ The Weather Company, told S&P Global Market Intelligence that he projects there will be about 9.5% less energy demand on average across the country year over year. Crawford said heavy rain and flooding in the Midwest this spring will likely result in a cooler summer, noting that temperatures in the region and into the Northwest have remained two or three degrees below average in recent weeks. He added the Southeast may have a slightly warmer summer than normal but not a significant increase.

“As we look through June, we don’t see a lot of heat through the major population centers, energy demand centers, of the eastern U.S.,” Crawford said. “If there’s any big heat going on in June, it’s going to be of the [Pacific] Northwest.”

Andy Blumenfeld, head of Market Analytics at Doyle Trading Consultants LLC, said some power demand data is already reflecting the effect of cooler temperatures heading into the summer. Though the U.S. had strong energy demand this winter, it has declined significantly more recently. Blumenfeld said he thinks coal burn will decrease significantly this year compared with 2018, dropping by much as 40 million tons to less than 600 million tons, a record low over the last several decades.

Blumenfeld added the potential for increased summer demand from the international market could help domestic producers, given the increased use of air conditioning in other nations outside the U.S., especially in Asia. “If we do see a spike in demand that certainly will help, so that’s possibly a good-news scenario that comes out of this,” he said, “but so far we’re not seeing it in the forward pricing to a great degree. There is some upward lift, but it’s still pretty low.”