The US coal industry is given a reprieve by the US government, but this will not last long: Jenarthan & Jain

Coal has been given an unlikely reprieve by the combination of U.S. support and the Iran War. Don't call this a comeback. In the first weeks of Tehran’s war against the U.S., and Israel, the global seaborne thermal prices of coal rose by over 25%. Prices rose to the highest level since late-2024, adding new momentum to a 'unexpected' rebound.

This price rise reflects short-term market conditions, not a structural improvement in the?coal economy, as is evident by the fact that prices are only 15% higher than pre-war levels.

These recent steps come after coal achieved several positive milestones in the last year. The U.S. consumption increased 10% in 2025. This ended a 15-year downward trend, and was largely due to an increase in natural gases prices, President Donald Trump’s support for the policy, and record electricity demands from data centers and artificial intelligence infrastructure. The global coal production and consumption increased marginally last year, mostly due to the growing energy demand of emerging economies. Thermal coal prices fell to a four-year-low in the first half 2025, however, as demand did not keep up with the production boom that followed Russia's invasion. China, the world's biggest coal consumer and a country that accounts for 56% of global demand, has fueled most of the additional consumption through domestic production, leaving the seaborne market with an oversupply. The U.S. coal sector has endured a tough few decades, punctuated with bankruptcies and restructurings. More than 60 U.S. coal companies, including the biggest in the industry filed for bankruptcy between 2012 and 2022. At least eight others have since been added. The future is not much brighter. The International Energy Agency predicted in December that coal demand worldwide would likely plateau by 2030 and then drop slightly due to the?slowing Chinese demand, as renewables and nuclear power erode China's dominance of power generation. This projection was made before the Iran energy crisis, but there are no signs that it has changed much.

The long-term trend is clear. Despite the short-term gains of "black gold" last month, coal is the largest source for global carbon emissions and is on the decline structurally in the U.S., with a likely stagnation globally.

BAD ECONOMICS

The U.S. coal industry was once a major source of electricity. However, its importance has been declining for many years in the largest economy on earth. Over the last decade, there has been little new investment. Alaska is the only state in which a new coal plant has been built since 2013. The majority of U.S. operators instead retire coal-fired power plants, because they are no longer economically viable to operate and maintain.

The Trump administration is trying to combat this. The Trump administration has prioritized expanding energy production to provide the massive amount of electricity required to fuel the AI Revolution. Even though Energy Secretary Chris Wright stated in September that Washington was in talks with U.S. utility companies and expected most of the dozen or so coal plants in the United States nearing retirement would delay their closure, it may be just postponing what is inevitable. This is because keeping old plants running can have real costs for ratepayers. The risk is illustrated by a case study on a Michigan coal power plant. The Environmental Defense Fund concluded that allowing the coal plant to remain uneconomical shifted costs on customers and discouraged investment in more cost-effective energy sources.

Grid Strategies estimates that federal mandates for coal plant extension could cost ratepayers up to $6 billion annually.

Further, the extension of coal plant operations will require continued policy intervention and cost recovery measures. It may also be necessary to issue emergency orders. This support will be unlikely to continue after the 2020 election, when the White House is likely to switch parties. The outlook for the future is also too uncertain to justify long-term investments.

Even if U.S. Federal policy boosts coal supply in the next few years, this does not guarantee that demand will follow suit. This is especially true given the stiff competition of natural gas and renewables. A mismatch between supply and demand will lead to a glut of coal, which in turn will result in lower prices. That's exactly what happened after the post-Ukraine-invasion supply surge.

CLEAR-EYED CAPITAL

After shunning coal for over a decade, institutional capital is now returning to it. This is largely due to the fact that coal companies have cut costs and returned cash back to shareholders over the past few years. Their share prices recovered from low levels and have outperformed broader equity indexes over the last five years.

This outperformance will not last. The cost of environmental liability and litigation is increasingly being priced into the valuations of coal companies, which has a negative impact on their long-term performance.

Investors may continue to be attracted by the Middle East energy crisis and U.S. executive action in favor of coal, but this will only temporarily boost the industry's structural problems.

The recent performance of coal companies is unlikely to last, as the current coal equity prices - now at levels 'below prewar levels' - already indicate.

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(source: Reuters)