At a time when Tata Steel is struggling to sell its UK steel plants, hit by cheap Chinese dumping in Europe, Peabody Energy Corp, the world’s largest privately-owned coal producer, filed for US bankruptcy protection on Wednesday citing the Chinese factor.
The company listed both assets and liabilities in the range of $10-50 billion (Rs 66,000-3.3 lakh crore), according to a court filing.
Peabody’s Chapter 11 bankruptcy filing ranks among the largest in the commodities sector since energy and metals prices began to fall in the middle of 2014.
“This was a difficult decision, but it is the right path forward for Peabody,” chief executive officer Glenn Kellow said in a statement. “This process enables us to strengthen liquidity and reduce debt, build upon the significant operational achievements we’ve made in recent years and lay the foundation for long-term stability and success in the future.”
As once fast-growing markets such as China and Brazil began to slow, coal prices have plunged, leaving Peabody unable to service a recent loan taken to expand into Australia.
Peabody had taken a $800 million debtor-in-possession financing, including a $500-million term loan, $200 million bonding accommodation facility and a letter of credit worth $100 million.
Peabody’s debt troubles date back to its $5.1 billion leveraged buyout of Australia’s Macarthur in 2011 — a coveted asset at the time meant to position the buyer as a supplier of metallurgical coal for Asian steel mills.
But as demand for metallurgical coal fell, particularly in China, Peabody’s woes intensified. It made a $700 million write-down on its Australian metallurgical coal assets last year.
At home, the miner was hit by the US shale boom of the past few years that has made natural gas competitive with thermal coal, as well as by new environmental regulations that raised operational costs.
With coal-fired power generation struggling to compete on price with shale gas and new laws restricting investment in the sector, the US coal industry went into an existential crisis.
Producers accounting for about 45% of US coal output have filed for bankruptcy in the current industry downturn, based on 2014 government figures.
While coal use has also stalled globally, largely because of China’s economic slowdown and its efforts to protect domestic miners and rein in rampant pollution, most analysts expect consumption of the fuel to remain stable or rise in the future.
Some 500 coal-fired power stations are currently under construction, 80% of which are in the Asia-Pacific region, where emerging markets as well as developed economies such as Japan and South Korea are still seeing consumption grow.