Old King Coal Not So Merry for U.S. Utilities Dealing with Volatile Coal Prices

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In the report, Return of the King: Coal Markets From a U.S. Power Sector Perspective, S&P Credit Analyst Aneesh Prabhu said, "Power companies are implementing various fuel strategies to mitigate surging coal prices, and which ones they chose depend on their expectations of where coal prices are going."

The U.S. power sector is scrambling to cope with the price volatility of the once stable commodity coal, a new Standard & Poor's report published Wednesday suggests.

In the report, Return of the King: Coal Markets From a U.S. Power Sector Perspective, S&P Credit Analyst Aneesh Prabhu said, "Power companies are implementing various fuel strategies to mitigate surging coal prices, and which ones they chose depend on their expectations of where coal prices are going."

"The degree to which the power sectors strategies to adapt to rising coal prices succeed will have a real impact on their credit quality," he added. Prabhu and Secondary Credit Analysts Grace D. Drinker, Richard W. Cortright, Jr., and Marie Shmaruk all contributed to the report.

In the past year, globalization of coal as a coal commodity "has caused spot to rise to unprecedented levels," the analysts noted. Spot prices for Central Appalachian coal rose 200% year-over-year to a high of $145 per ton at the end of December.

S&P asserts that the sharp run up in spot markets during the past year "provides evidence that the U.S. coal industry is in the midst of a bull market, Nevertheless, the analysts said the actual picture is quite different. "Supply has exceeded demand for the past four years and coal stock piles at utilities have increase year-on-year; classic indications of a bear market."...

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