Trump’s Win – Hope or Despair for Coal Industry

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Republican nominee, business man Donald Trump won the 58th presidential elections to become the 45th President of the United States of America on the 8th of November 2016. Trump’s unexpected victory sent a wave of despair and shock to many Americans and people around the world; however, it brought expectations in the energy industry that Trump would clear the path for new pipelines, end US participation in global climate change pacts and change environmental regulations to boost American coal mining.

During his election campaign he promised to unleash America’s USD 50 trillion in untapped shale, oil & natural gas reserves, plus hundreds of years in clean coal reserves and also proposed to remove all US trade deals with East Asia, especially China. Trump as the US President might bring long term benefits to the global industry, but for now there is a sense of uncertainty in the financial market.

There was a speculation of surge in metals demand from the United States with greater infrastructure spending after Donald Trump won the presidential election. However, some analysts cautioned the rally, as the market was driven more by sentiments than business fundamentals and volatile trading is likely to continue. Since Trump was elected, three coal companies stocks in particular did remarkably well in the market: Arch Coal (ARCH), Peabody (BTUUQ) and Alliance Resource Partners (ARLP).

Iron ore index rose 8% w-o-w recently (as on 25 Nov’16) to USD 79/mt, CFR China to the highest in almost two years on speculation of much higher future US spending on roads and bridges, while steel smelting ingredient coking coal prices have gone up to USD 300/mt FoB Australia. Although, Trump’s infrastructure plan may have only a modest impact on the global steel market as US represents a mere 7% of worldwide demand and the nation’s steel per capita consumption is only half of China’s, according to reports.

“The clearest message delivered by Donald Trump in his election victory speech was a focus on greater infrastructure spending in the US”, as per market analysts. “Without specific details, it is hard to quantify the impact on commodity demand; however such infrastructure policies would support steel, iron ore, zinc, nickel, diesel and cement.”

Impact on Indian Iron and Steel Industry

Trump has a 15-point agenda, which, if he decides to implement, could impact India in several ways like the immigration issue, free trade out sourcing, and the corporate tax plan. But as per reports, the chances of a deteriorating impact on coal and iron ore industries is the least, because his policies are likely to support these industries which will act as an impetus for the Indian industry.

Throughout his campaign, Trump promised to make US an energy sufficient country that will open up the oil, natural gas and coal reserves to the world. Presently, the Pacific is holding an important market for coal, due to which exporters are expecting leverage in the US exports that will bring prices down. But there is an underlying point that US has to compete with the largest coal exporter – Australia. Also, there is indication that the two largest coal markets ie India and China, will work to keep the imports low for security and revenue reasons. Trump also promised to open onshore & off shore leasing on government lands and lift the coal leasing embargo which would benefit India.

Trump as the 45th President of United States is faced with lot of challenges. Whether his loud promises will be translated to reality is a top-of-mind concern of industry analysts. Trump might lead a revival of the coal industry as a major energy source for US and as an export product to other countries. But, there still lies a sense of uncertainty with the current environment for coal and it will be a challenge for Trump to deliver on his campaign promises. Especially, for coal plants to remain clean and efficient will be the real task for the industry in the coming years.

BY DR SHEENA ABRAHAM

Source: Steel 360 Magazine Dec’16 Issue