After losing more than half of their value in 2019, U.S. coal companies in the SNL Coal Index continued the downward plunge in the first month of 2020.

The value of the SNL Coal Index has declined 22.9% year-to-date as of Feb. 3, compounding on a 53.5% year-to-date drop heading into the last full day of trading of 2019. Weakening export markets, an ongoing secular decline in domestic coal demand and investors increasingly turning away from the coal sector are all likely factors driving the downward fall in coal equity values.

The losses are spread across the industry. Consol Energy Inc., primarily a thermal coal producer, has seen its stock lose 44.0% of its value year-to-date, and shares of increasingly metallurgical-focused coal producer Contura Energy Inc. are down 36.2% year-to-date. The stock prices of other large producers such as Peabody Energy Corp., Arch Coal Inc. and Alliance Resource Partners LP have lost a fifth of their value or more since the beginning of the year.

Pure-play metallurgical coal players such as Ramaco Resources Inc. and Warrior Met Coal Inc. fared better early in the year, but are still down 14.9% and 8.9%, respectively.

Moody's Investors Service said Jan. 22 that coal company earnings are likely to decline sharply in 2020 as access to capital becomes an increasing risk to the industry. The firm projected that in 2020, U.S. coal production volumes will fall to the lowest level reported since the early 1970s.

"While we warned about the risks of falling export prices in early 2019 and revised our outlook for the coal industry to negative from stable in August 2019, coal producers did not feel the full impact on earnings immediately thanks to contracts signed during a stronger environment," the Moody's report said. "We expect that EBITDA will fall by about one-third across the rated portfolio in 2020, including some met-driven producers that could fall more significantly."

Alliance Chairman, President and CEO Joseph Craft said on a Jan. 27 earnings call that much of the industry's recent malaise has come from a harsh turn in coal market fundamentals in 2019. International coal demand, which propped up U.S. coal companies against the loss of domestic business, weakened due to falling demand in Europe, a surge in competition from Russia and falling natural gas prices.

"As a result, the international markets became uneconomic for most U.S. coal producers, causing exports to decline sharply," Craft said. "Reduced export volumes and tepid domestic coal demand due to persistently low natural gas prices caused a significant oversupply in the United States, creating additional pressure on domestic coal prices and producers. We continue to believe that current market conditions are unsustainable for most of [Alliance's] competitors."

Beyond the weakening market and deflated expectations for upcoming earnings reports, news that giant asset manager BlackRock Inc. would divest certain of its funds from companies that profit significantly from thermal coal production also struck the coal sector in mid-January. BlackRock owned 15.7%, 12.7%, 8.3% and 5.4% of the outstanding shares of Consol, Contura, Arch and Peabody, respectively, as of a Jan. 15 analysis by S&P Global Market Intelligence.

Coal equities' value continued to slide as benchmarks for seaborne thermal and metallurgical coal continued to decline week to week, B. Riley FBR analyst Lucas Pipes said in a Feb. 4 note. Lower coal prices prompted Pipes to maintain a "buy" rating while lowering the price target for Consol from $22 to $15. The analyst maintained an $11 price target and "neutral" rating for Alliance shares. In a separate Jan. 31 note previewing earnings from Peabody and Arch, Pipes noted that in a year of operational challenges, Peabody's stock price is down 81% over the last 12 months, while the S&P 500 climbed over 25%.

Highlighting recent weakness in the thermal coal-producing Powder River Basin, Pipes said to expect "soft results" from Peabody and Arch, which report earnings results Feb. 5 and Feb. 6, respectively.

"Any incremental progress regarding the planned Arch/Peabody joint venture would be welcoming news on this front," Pipes wrote. "In our opinion, the steadily-weakening Powder River Basin demand is a structural rather than cyclical concern, and consolidation is a necessary condition for the long-term survival of many operators in the basin."