Chinese Steelmaking Sparks Mini-revival for Ailing Coal Industry

Via The Washington Examiner:

Consol Energy saw a record year at its coal export terminal in Baltimore in 2017, serving ships bound for Asia and Europe.

The company mined some of the coal itself from its three sites in southwestern Pennsylvania, mostly in the form of traditional thermal — or steam — coal, used for electricity generation.

But much of the coal came from other U.S. companies mining lesser-known metallurgical — or coking — coal, the high-temperature type used in steelmaking.

It’s this type of coal, marked for export, that sparked a mini-revival for the downtrodden industry last year.

“We expect globally coal will continue to be cost-effective and prevalent,” said Jim McCaffrey, Consol’s senior vice president of marketing, in an interview with the Washington Examiner. “We will see some lumpy years. No doubt about that. But our cost picture puts us in a great position to ride out bad times and enjoy the good times.”

Driven by exports, U.S. coal production increased by 6 percent last year.

Exports of metallurgical coal rose 39 percent as of November from the same time in 2016, according to the Energy Information Administration. Exports of steam coal, meanwhile, rose 28 percent.

Coal mining jobs saw a 1 percent increase last year to more than 50,000, a response to increased demand from Asia, mostly China, for metallurgical coal, experts say.

Coal prices in China spiked last year because a massive cyclone hampered production in Australia, a major supplier, leaving an opening for plentiful stocks of expensive U.S. metallurgical coal.

While the Trump administration no doubt delights over that trend, the improved performance does not quite represent a coal comeback, experts say, and it’s unlikely to save the fossil fuel as a fading power-generating source.

Despite the growth in exports, U.S. coal consumption dropped by 2.4 percent in 2017, falling to its lowest level since 1982. Coal’s portion of the electricity generation mix, which was nearly 50 percent a decade ago and slightly above 30 percent now, is projected to fall below 30 percent this year, the EIA said.

The impact of a thriving metallurgical export market for steelmaking, meanwhile, is not felt evenly.

Less than 10 percent of coal produced in the U.S. is metallurgical, and it’s mostly mined in the north and central Appalachian Mountains.

“When you look at what’s good or bad about this recent trend for coal mining constituents, the good news is metallurgical coal sells at a premium,” said Kevin Book, who studies coal policy for ClearView Energy. “Producing more metallurgical coal improves the profitability of a mine. But most mines in America don’t produce metallurgical coal. You won’t put all miners back to work on metallurgical grade coal, because most of the coal in America won’t cooperate.”

China won’t necessarily cooperate, either, because its demand for coal is historically volatile.

China in recent years has been a bellwether for U.S. coal exports, especially of metallurgical coal, with the country accounting for roughly half of global steel consumption because of its aggressive urbanization and infrastructure investment.

“When you think about coal internationally, it’s China that largely drives the market from the demand side,” said Pete Marsters, a researcher at the Rhodium Group focused on energy trends there. “Any market increase in coal demand, particularly for metallurgical coal used in steelmaking, will affect U.S. markets.”

China, before a short-term increase last year, had invested less in metallurgical coal for steelmaking, as it transitions to a more service-based economy.

Marsters says the decline in Chinese demand was a leading contributor in causing U.S. coal company bankruptcies in recent years.

Between 2011 and 2014, 93 percent of the decline in U.S. coal producer revenue was caused by a drop in metallurgical quantities and prices, the Rhodium Group determined in a February 2016 report.

“A lot of these companies that made big bets on metallurgical coal exports to China are ones that tended to go bankrupt,” Marsters said.

Reflecting that unpredictability, the EIA expects U.S. coal production to drop by 2 percent this year and next, because of lower exports and no growth in domestic consumption.

Coal boosters argue the improved performance last year is more sustainable.

Luke Popovich, vice president of external communications for the National Mining Association, notes that total U.S. exports of coal, including the thermal kind for electricity, rose 67 percent last year, through November.

As with metallurgical coal, Popovich attributes growth in thermal, or steam, coal exports to increased demand from Asian countries, which he says are transitioning away from nuclear power.

He contends developing nations will continue to desire U.S. coal to power homes and businesses, a belief that backs up the Trump administration’s objective of exporting fossil fuels.

“I don’t see why both sides of the coal industry wouldn’t be beneficiaries in this strong growth environment,” Popovich said. “And the real story here is the way steam coal has bounced back. I think we will continue to see this spurt, with the growth in GDP across the world. Steam coal correlates closely to electricity demand, and that tracks closely to GDP growth.”

Coal supporters seeking a revival also are looking to supportive policies from the Trump administration.

President Trump has moved to repeal a host of Obama-era environmental regulations, such as the Clean Power Plan targeting carbon emissions from existing power plants. He also has repealed a rule that restricted coal companies from dumping mining waste into streams and waterways, and encouraged more coal mining on federal land by changing the royalty payment structure to benefit the industry.

Most experts have dismissed the impact of those actions, noting the coal industry has been significantly harmed by competition from the increase in cheap natural gas and the steady rise of renewables.

Last year’s success for metallurgical exports was also mostly market-driven and unrelated to White House policy, the experts say.

Popovich acknowledges market challenges, but he doesn’t dismiss Trump’s help.

“It’s absurd to think these policy changes are not in any way correlated with the revival of coal,” Popovich said. “We are not fighting a two-front war anymore. We just have to deal like everyone else does and compete in the marketplace, but at least we’re not fighting our own government.”

McCaffrey of Consol Energy says Trump’s impact has been more intangible.

“Trump’s push for the coal industry has added lot of optimism,” he said. “There is a lot of indirect effect. The Trump administration has provided certainty that has benefited our customers, which has benefited us.”

Book is more restrained about whether coal’s comeback, whatever its form, can expand by riding on Trump’s coattails.

“By doing things Americans can’t see, the Trump administration already is in a position to improve the productivity of the coal industry and has done so at least a little bit, and that’s meaningful,” Book said. “What Trump has not been able to do is create new sources of domestic demand for coal. Because that problem is not regulatory in nature. It’s almost entirely economic.”

See the article here.