In the third quarter, U.S. coal mine employment dipped to the lowest level reported by the industry since the end of 2016.

Coal production continues to fall as average coal mine employment figures edge closer to an all-time low reached in the third quarter of 2016, an S&P Global Market Intelligence analysis of U.S. Mine Safety and Health Administration data shows. Overseas demand for coal has offset declining domestic demand in the past few years, but the recent deterioration in those markets is causing financial challenges for U.S. coal producers.

"The hard truth is that the high-cost supply needs to permanently exit the market in order for a sustainable and flexible supply base to remain, which should, in turn, encourage price discipline," Nicholas Cron, vice president of portfolio optimization and marketing at XCoal Energy & Resources LLC, said at a recent industry conference focused on steel and coking coal. "With its flexible supply base, the U.S. can quickly respond to price signals in the market and demand. This is evident in the two-year increase in exports that we've seen from 2016 to 2018."

Cron added that every major producer is feeling pressure to close coal mines as the market weakens.

Federal data shows an average of 52,310 coal mine employees across the U.S. in the third quarter, down about 1.6% compared to the prior quarter. Average coal employment dropped about 4.1% compared to the first quarter of the year.

Coal production in the first three quarters of 2019 totaled 541.0 million tons, down about 3.9% year over year and about 6.8% lower than the comparable 2017 period. The production total in the period is the lowest since a sharp curtailment in reported volumes in the first half of 2016 before a boom in overseas demand drove a rebound in output.

U.S. coal production and employment often do not track each other perfectly. The amount of coal produced per employee-hour works differs dramatically across regions and by mining method. For example, when overseas demand is high, it often drives higher production from eastern U.S. producers where generally higher-quality coal requires more employees to mine the same amount of coal than in the Powder River Basin. Conversely, a significant cut in thermal coal production from the Powder River Basin can have a weighty impact on production figures, but a lesser effect on national employment figures.

Average coal mine employment in the Powder River Basin held steady over the past few quarters but dropped in the third quarter even as production rose. While producers increased production in the region during the period, there was significant disruption as a financing related to Blackjewel LLC's bankruptcy reorganization fell apart and led to reduced operations at two of the region's large coal mines.

Moody's Investors Service recently noted that the basin remains distressed and said long-term credit prospects were dimmed by environmental, social and governance concerns. Thermal coal from the region struggles to compete with low natural gas prices and the falling cost of renewable energy.

"Production in the [Powder River Basin] will likely fall significantly in 2020," Moody's said in an October note. "We expect that at least a few PRB mines will close in the early 2020s."

Several of the mines in the region have recently been through bankruptcy. The two largest producers in the region, Arch Coal Inc. and Peabody Energy Corp., are in the process of combining western U.S. coal assets primarily composed of Powder River Basin mines into a joint venture to better compete with other sources of energy.

Coal production from the three primary coal basins in the eastern U.S. — the Illinois Basin, Central Appalachia and Northern Appalachia — all ticked downward in the third quarter. Companies in the region are reporting weakening prospects for overseas coal markets and are calling for supply rationalization as they brace for export volumes to try to return into an oversupplied domestic market.

While it might take some time, Hallador Energy Co. President and CEO Brent Bilsland said on a recent earnings call that producers just need to wait out the storm, expecting global demand to return.

"I mean it's got times that it's strong, and there are times that it's weak," Bilsland said of export demand. "But we know that the overall trend is, coal plants are being built around the world, and those plants continue to need coal to feed them. The Illinois Basin has proven to be a low-cost exporter of that thermal market ton. So we continue. We don't think anything has changed about that trend."