Coal Outlook per Joy Global’s Jun 2009 CC
JOYG depends upon coal mines for purchase of its heavy equipment; it watches the coal industry carefully. JOYG’s statements regarding the current and near future state of the coal industry in its recent June 3 CC were:
US coal production could be down 9% from last year. If so, it would be the largest reduction in coal consumption since 1954 and the largest drop in coal production since 1958. This would require taking 90 to 100mm tons of production offline, of which around 70mm tons have already been announced. With quick production cuts matching demand decline, JOYG expects US coal prices to stay above the average cost of production, but not by enough to justify expansion.
JOYG expects natural gas surpluses in the US to deplete rapidly without drilling, and drilling requires gas above $7. This equates to Central Appalachian coal prices above 70 to $80 per ton coal.
China has increased its imports of metalurgical coal significantly as part of its rebuilding of steel inventories. Sustained demand from China for copper, iron ore and met coal will require significantly increased exports or a stronger recovery in the domestic markets. This level of demand is unlikely to develop soon. Consequently, the need for metalurgical coal in China is likely to be short lived.
China has a renewed emphasis on mine safety trigged by a large mine explosion that killed a number of miners in the Shanxi province. Shanxi province just shut down all of their mines until they go through safety inspections. That’s been a fairly torturous process. Many of those mines won’t be able to pass the safety regulations and won’t come back on-line. In China, about half the country’s coal production is produced by these small mines. On the other end of the extreme the large, state-owned mines, have been expending rapidly, but they have not been able to grow fast enough to offset the impact of closure of the small mines for safety violations. There are more pressures on the provincially owned and some of the mid-tier mines to increase their production in China.
