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The US Metallurgical Coal Industry’s Unprecedented Consolidation

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US metallurgical coal industry

Metallurgical coal (or met coal) is used to make coke for iron and steel as well as foundries. The majority of metallurgical coal produced in the US is exported. In fact, metallurgical coal dominates overall US coal exports. According to the US Energy Information Administration (or EIA), during the first nine months of 2014, the US exported 75 million short tons of coal. Of this total, 48 million shorts tons—or 64%—was metallurgical coal.

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Metallurgical coal exports grew steadily until 2012, when supply constraints in the Pacific market resulted in fast-growing Asian countries, notably China, importing metallurgical coal from the US. US met coal exports to China grew from under 1 million tons in 2009 to 6.9 million short tons in 2012.

Consolidation and overcapacity

However, coal production started rising again in 2012 as production in Australia was restored. Moreover, many met coal producers scaled up their capacities in anticipation of continued stronger demand. The US coal industry (KOL) saw unprecedented consolidation in 2011, when confidence in the industry was running high. Walter Energy (WLT) acquired Western Coal in April 2011, followed by Alpha Natural Resources’ (ANR) Massey Energy Acquisition in June 2011. In the same month, Arch Coal (ACI) acquired International Coal Group. Peabody Energy (BTU) acquired McArthur Coal in Australia in late 2011. We discussed each of these transactions in detail in the Market Realist series Should you expect big US coal mergers and acquisitions soon?

What happened next? Find out in the next part of this series.

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