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Not deflation, this is a case of overproduction and changing market needs.

Why burn coal when natural gas is so cheap and better?

Glencore Is Capping Coal Production. Here’s What It Means for Caterpillar and Other Mining Equipment Makers

Glencore (GLEN.London) is one of the world’s largest miners of commodities like copper, zinc, nickel, and coal. That’s makes it an important customer for mining equipment makers like Caterpillar (CAT). So those suppliers had reason for concern Wednesday morning, when Glencore said it would cap its coal output because of climate change. The new policy could impact Glencore’s mining peers, and its effects could ripple up the chain all the way to Glencore suppliers.

Caterpillar makes a lot of mining equipment. Caterpillar’s mining business—which roughly equates to its energy, transportation and resource industry segments—makes up about half of total sales. Construction equipment makes up the rest.

Catepillar’s primary coal assets were acquired when the company bought Bucyrus in 2011 for almost $9 billion. When the acquisition was completed, coal equipment accounted for about 8% of the combined company’s sales. Caterpillar competitor Komatsu (6301.Japan) also bought into the coal mining business when it purchased Joy Global in 2017 for $3.6 billion—coal equipment accounted for about 16% of revenue after.

While Glencore’s commitment to combatting climate change is meaningful, the impact on mining suppliers won’t be felt anytime soon. Glencore is capping coal capacity at 150 million metric tons. The company mined about 132 million metric tons in 2018 and plans to increase production in 2019. “Coal will stay in the portfolio,” CEO Ivan Glasenberg said on a conference call.

Glasenberg said that with limited new coal supply coming online and demand for coal still growing, coal prices could face upward pressure. Higher coal prices will give existing miners the cash needed to maintain their fleet of equipment. Higher prices and limited supply growth will also put a premium on mine efficiency.

What’s more, Glencore sees total mining capital spending—which turns into sales for companies like Caterpillar—growing from $38 billion to $43 billion in 2019. That’s the third straight year of growth. And $43 billion is still a far cry from the $77 billion the industry spent in 2012.

Demand for mining equipment looks healthy. That’s why Caterpillar CEO James Umpleby called mining activity robust on his company’s recent earnings call.

The impact of Glencore’s policy change is likely to accelerate the discussion of what it means to mine in a low carbon world. Coal-linked companies could see valuation multiples contract as investors weigh prospects for lower growth. But with Caterpillar trading for just 11 times estimated 2019 earnings, Caterpillar stock should be insulated from a negative reaction for now. And, based on Glencore’s outlook for additional mining capital spending, it appears that investors may have been too quick to call a top in the business cycle for Caterpillar.

Caterpillar was named a Barron’s top pick for 2019. The company didn’t immediately comment.

Glencore stock was up about 2% on Wednesday morning and Caterpillar stock was up about 1%, while the broader S&P 500 was flat.

https://www.barrons.com/articles/glencore-caps-coal-production-51550677582?mod=hp_BRIEFLIST_3&mod=article_inline

Glencore Plans New Buyback as Trading Profit Disappoints

Company to repurchase at least $2 billion of shares this year - Glencore’s trading profit dropped to the lowest since 2013

Glencore Plc reported its weakest trading profit in five years and missed analysts’ earnings estimates, even as the mining giant promised to increase its rewards to shareholders after a tough year.

The disappointing performance in the trading unit is a blow for Glencore, which has always said its traders can make money in any kind of market. The company touts the unit as a differentiator from other big miners, cushioning the ups and downs of the commodities cycle.

Trading Stumbles

Glencore's marketing profit dropped to a five-year low

Glencore’s shares declined even after it announced a new $2 billion buyback program and said it plans to return another $1 billion after selling non-core assets over the course of this year. The commodities giant also pledged to cap coal production in response to investor pressure for action on climate change.

Glencore fell 0.6 percent as of 12:54 p.m. in London, as the FTSE 350 Mining Index fell 0.1 percent

https://www.bloomberg.com/news/articles/2019-02-20/glencore-to-buy-back-another-2-billion-with-more-to-come

WASHINGTON (AP) — Americans are consuming less coal in 2018 than at any time since Jimmy Carter’s presidency, a federal report said Tuesday, as cheap natural gas and other rival sources of energy frustrate the Trump administration’s pledges to revive the U.S. coal industry. A report by the U.S. Energy Information Administration projected Tuesday that 2018 would see the lowest U.S. coal consumption since 1979, as well as the second-greatest number on record of coal-fired power plants shutting down.

https://www.apnews.com/2b47b6773d6d4e6aae638610180c1f98

"Eighteen percent of all electricity in the United States was produced by renewable sources in 2017, including solar, wind, and hydroelectric dams. That's up from 15% in 2016, with the shift driven by new solar and wind projects, the end of droughts in the West, and a dip in the share of natural gas generation." Feb 18, 2018

Also I read Germany is cutting back on coal usage.

Also, drive through western TX and OK, and you'll see mile and miles of wind turbines.

AD says

Also I read Germany is cutting back on coal usage.

Not so. Wind Power is extremely variable. I forget if it was 2015 or 2016, Germany got something like 10% less electric, though they had 12% more wind turbines. Just wasn't a windy year. Ironically, they brought electric from Polish Coal Plants.

The German public is paying double for electric over 2000, and the German Government itself admitted it'll miss it's 20-year target of renewables by 40% in 2020. Which is when the wind turbine subsidies vanish entirely. 70% of Germany's Solar Workforce was laid off. German Industry is shrieking, because earlier this year the grid almost failed, and demanded old coal plants be refurbished.

Efficient Battery Storage is the problem. There is no magical warp chemistry that will fix it. And battery manufacturing is unbelievably polluting. Wind and Solar are condition-limited, Nature doesn't cooperate, False Averages prevail (ie X Days of Sunshine/X Mph Wind Speed over a Year is calculated over many decades, but there can be huge swings from one year, or month to the next). You might get 20% more sunshine and wind one month, next month have half the average sunshine and wind. What makes up the difference?

The best solution is safe, efficient molten salt reactors and Solar Microwave Satellites. The latter will be cheap in the long run, but expensive yet absolutely doable in the short run. In fact, the investment would create all kinds of beneficial secondary developments...

Guess where most of France's Electric Power comes from?

Why have energy consumers had to foot the rising electricity bills even as the market price of electricity was dropping? First, the costs imposed by the Energiewende far outweighed the falling prices on the wholesale markets. Second, to preserve Germany’s economic health, which to a large extent depends on exports of industrial goods, the government shielded energy-intensive manufacturing processes, such as chemical, aluminum, paper, and glass production, from EEG-related charges to keep manufacturing companies from migrating to countries with cheaper energy, or simply to protect them from economic failure due to the high price of electricity. As a result, about 40% of the nation’s electricity is used by industries that are largely protected from contributing to the Energiewende costs—expenses that therefore must be borne by other energy users.

https://issues.org/inside-the-energiewende-policy-and-complexity-in-the-german-utility-industry/

So basically, residential and commercial users pay most of the costs of the EnergieWunderbar. If Industry had to pay, they'd be Wanderrung to West Virginia and Pennsylvania.

The typical German pays 30 Eurocents a KWh. The typical American pays 13 USD cents per KWh

MisterLearnToCode says

The best solution is safe, efficient molten salt reactors and Solar Microwave Satellites. The latter will be cheap in the long run, but expensive yet absolutely doable in the short run. In fact, the investment would create all kinds of beneficial secondary developments...

I agree MisterLearnToCode.

In the mean time, Germany will have to rely more on natural gas imports from Russia such as via its Nord Stream natural gas pipeline.

Coal may be down, but Natural gas is superabundant and cheap.
https://en.wikipedia.org/wiki/File:US_Natural_gas_prodxn_1900-2013.tiff
When wind stopped in TX, they built peaker combined cycle units that use a turbine that burns natural gas, and has a secondary recovery system to capture exhaust gas energy. 62% efficient compared to regular coal fired steam plants. But we're still boiling water to make electricity, for the most part. /sigh. The good news is more power capacity of different types make the grid more resilient. We need more of this for severe natural disasters, (severe solar flare, anyone?) but it's a start.

Back to coal: the Powder River Basin produces 40% of USA coal, and has at least 20 years of cheap coal left. It's all about economy - if energy prices go up, we will go back to coal.

I like the concept of waste heat recovery to improve power plant efficiency.