Joy Global’s comments about coal in 12/17 CC:
“... if coke exports from China are a barometer, met coal prices could go down 40%, but it would still be at historically strong prices. Volume cuts will be mitigated by downgrading with lower quality returning to the thermal coal markets.”
“Thermal coal prices have held up better than other commodities and are ahead of year ago levels. Thermal coal is used primarily for power generation and this demand varies the least with economic performance. In fact, power generation in the U.S. has dipped into negative territory only three times in the past 50 years. Although this current recession may be the fourth, we can expect power demand to decline by 2 to 3% at the most. ... In addition, the next round of new power plants in the U.S. and Europe will be coal-fired. And the U.S. has as much as 15 to 20% of additional coal-fired capacity through higher plant utilization. And as a result, we think that coal use has limited downside through this recession and that coal has the greatest upside during recovery.”
“As we look at our markets, obviously, cutting back on production early and minimizing the chances of over building and over building stockpiles and having to work through that in the later part in the recovery part of the cycle is good. Early cuts will level out the production rather than creating whip-saw effects. And I think that’s ultimately very, very good for our business.... The timing of the cuts was demonstrated in the weak U.S. coal markets in 2006, 2007 where we saw customers take production offline quickly and minimize the whip-saw effect of too much stockpiles later in the recovery part of that market. And so we feel pretty good that the U.S. coal market experience of 2006, 2007 is an up to date barometer. ... we are also seeing our customers do a lot of high grading. So a lot of the mines that are coming off are marginal mines. Some of those are smaller mines, like in the Surface area there will be mines that are typically using hydraulic excavators rather than the electric rope shovel.”
