Coal mines in Wyoming's Powder River Basin are paying the price for weakening demand because of a warm winter and utilities switching away from coal to cheap natural gas, according to companies with mines in the basin.
St. Louis-based Arch Coal Inc. said Tuesday it had idled some equipment and will idle more later this year. St. Louis-based Peabody Energy Corp. and Gilette-based Cloud Peak Energy Inc. say they've cut some temporary workers and contractors at their mines in the Powder River Basin.
Last year coal producers in Wyoming's portion of the basin produced 426 million tons of coal. Slow demand this year could cut 2012 production in the basin by 40 million tons "due to the low demand and coal to gas switching," said Colin Marshall, Cloud Peak president and chief executive, in a conference call with analysts.
Arch Coal, which produced 115 million tons from two mines in the basin last year, said Tuesday that "severe weakness" in the U.S. market for coal used to generate electricity cut sharply into its first-quarter earnings and forced it to further curtail production for the year.
Arch Coal blamed the lower earnings on a U.S. market that appears unsettled, at least for now. The mild winter reduced demand for electricity and heating, which helped push down natural gas prices. A number of power plants have switched to gas from coal to generate power, resulting in what Arch called "unprecedented" stockpiles that reduced demand.
Arch idled one dragline, switched another one to reclamation work, and limited loading of rail cars in its Wyoming mines. The company will have three draglines idled before the middle of the year.
It's not yet clear how the decrease in production cut will affect jobs, said Kim Link, spokeswoman for Arch Coal.
"We're trying to figure out where we go from here," she said.
Cloud Peak executives said they were hopeful they wouldn't have to idle any equipment, but said they're managing overtime, conducting plant maintenance and reducing use of contractors.
Peabody spokeswoman Beth Sutton told the Gillette News-Record the company cut some temporary workers and contractors last week to match production totals, totaling less than 2 percent of its Powder River Basin workforce. That's less than 40 workers, according to federal employment data.
Arch thinks U.S. coal consumption for electrical generation could drop by at least 75 million tons this year, so it is paring its total production in the U.S. by 25 million tons over 2012. Arch has eliminated some 500 jobs company-wide since the market's downturn.
"While we hope that coal markets improve as we progress through 2012, we don't plan to push tons into an already oversupplied market," John Drexler, senior vice president and chief financial officer, told analysts during a conference call.
"The U.S. coal industry is in the midst of a restructuring that will cause some players to exit the market and others, like Arch, to pare back operations until market conditions improve," said John Eaves, Arch president and chief executive. "Such change creates opportunities for our company, which is well-equipped to move tons offshore to serve growing global coal demand."