Mining firms forecast coal demand, prices will stay up in 2008

Demand for U.S. coal from overseas markets is driving forecasted coal prices up

By Dave Hannon -- Purchasing, 4/25/2008 7:33:00 AM

Coal miners are reporting increased rates for coal in the U.S. as the demand for U.S. coal in overseas markets continues to grow.

"The export market is driving markets," said Jeremy Sussman, an analyst with Natixis Bleichroeder, noting that China was importing steam coal for its power generating plants and metallurgical, or coking, coal for steelmaking.

Arch Coal earlier this week said it estimates that U.S. coal imports could decline as much as 10 million tons while U.S. coal exports in 2008 will increase by another 20 million tons over last year's levels.

“Constrained global coal supply has allowed the U.S. to become a more significant supplier of metallurgical and steam coal into the Atlantic and, in some cases, Pacific basins,” Arch Coal said.

Reuters reports that a ton of eastern U.S. coal that sold for $44.75 a year ago is now selling for $85.50. Powder River Basin coal from Montana and Wyoming has risen to $15/on from $8 in the last 12 months.

Coal miner Massey Energy said average coal prices were up more than $4/ton in the first quarter and plans to open a new coal mine in the U.S. every 17 days this year to keep pace with demand. Massey said coal prices average of $56.36/ton, up from $52.26 a year earlier.

In a statement, Massey said it opened nine new mines in the first quarter and according to an Associated Press report, CEO Don Blakenship said it will continue its ambitious expansion designed to up production 25% by 2010.

“World demand and tight supplies of both steam and metallurgical grades of coal have pushed prices to record high levels," said Consol Energy President and CEO Brett Harvey in the company’s earnings statement.

Consol Energy said it expects to increase exports by approximately 25% this year. “Worldwide demand for steam and metallurgical coal continued unabated during the first quarter of 2008 as developing nations increased coal consumption for electricity generation and steel making purposes,” the company said. Consol also said that according to the U.S. International Trade Commission, coal exports for the first two months of 2008 were up 30% versus the same period last year, while imports during the same time frame fell nearly 10%. “Consol expects to capitalize on the growing international demand by increasing the amount of coal it exports.”

“There is no question the international platform will continue to grow," said Gregory Boyce, CEO of Peabody Energy, noting that the Powder River Basin of Montana and Wyoming is the only world region capable of producing the coal needed for increased global demand. Coal pricing in recent contract negotiations has jumped to as much as $25 a ton, Peabody’s CFO Richard Navarre told Bloomberg recently, adding that Peabody’s exports from the U.S. have tripled since 2006 as global stockpiles fall short by 100 million tons.

International Coal said for 2008, it expects to sell about 20 million tons of coal at an average selling price of $51 to $52.50/ton, up from the previous estimate of $47 to $48/ton.