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Fitch: Higher Cost Headwinds for U.S. Coal Industry in 2008
NEW YORK - February 7, 2008 - Higher operating and materials costs will constrain earnings growth for U.S. coal producers in 2008 despite an improved pricing environment, according to Fitch Ratings. Fitch expects only modest growth in coal production following a 1% contraction in 2007.
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Coal producers are experiencing elevated prices of consumables such as fuel, explosives and steel, in addition to high labor costs. Maintenance and capital costs continue to be on the rise, and can be amplified when mining in new or challenging regions.
A further uncertainty is the current regulatory environment regarding carbon emissions, which has stalled plans for many new coal plant builds. These new coal plants would cap domestic demand in the intermediate term.
Despite the high cost environment, Fitch believes that coal producers will, for the most part, continue to balance capital spending with free cash flows and maintain healthy capital structures. Growth in export demand may underpin higher pricing and should help companies manage production volumes efficiently to lower unit costs.
'Most issuers have made strides toward improving their liquidity positions, despite a very challenging 2007 for the coal industry and markets in general,' said Monica Bonar, Director, Fitch Ratings. 'Consolidation will continue on a modest scale and generally involve acquisition and sale of reserves.'
The full report is titled 'Coal Outlook for 2008: Are Higher Exports Enough?' and is available on the Fitch Ratings' web site at www.fitchratings.com. Financial summaries for the major global coal producers are provided in the report.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com . Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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For more inforamtion contact:
Fitch Ratings
Monica Bonar
Phone No: 212-908-0579 (New York)
Sean T. Sexton, CFA
Phone No: 312-368-3130 (Chicago)
Brian Bertsch
Phone No: 212-908-0549
(Media Relations, New York)
Source: Fitch Ratings
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