W.Va. Met Coal Producers See Increasing Demand

By Kasey, Pam

West Virginia’s southern coalfields hold some of the best metallurgical coal in the world. Now, in response to a several-year upward trend in global prices for metallurgical coal, production is on the rise.

Richmond, Va.-based Massey Energy Co. announced in October an expansion of 8 million tons in annual production by the end of 2010 – more than 7 million tons of that in West Virginia and about half of it in metallurgical coal.

The move represents an increased focus on metallurgical coal for central Appalachia’s largest holder of coal reserves.

“The percent of Massey’s production that is metallurgical coal is currently between 20 and 25 percent,” said Massey Director of Investor Relations Roger Hendriksen.

The expansion takes advantage of higher prices in global markets.

Metallurgical coal, or met coal, is essential in the production of steel. Met coal is converted to high-carbon coke, which provides both the heat and the carbon needed to make steel.

Met coal is drawing $70 and more per ton now, compared with closer to $40 just five years ago, according to the U.S. Energy Information Administration. And while the global price for thermal coal for electricity production is trending generally upward as well, met coal prices have pulled well ahead during the past several years.

The current high prices are due largely to two global supply disruptions, according to Hill and Associates Coal Market Analyst Jim Truman.

One of those is port restrictions in major met coal producer Australia, Truman said. “They’re unable to export as much coke and coal to global markets as they would like,” he said.

The other is a reduction in Russia’s exports into eastern Europe.

But beyond those short-term supply factors – Australia’s port infrastructure is expected to improve in the coming few years – steady demand growthmay be seen in new coke ovens planned globally.

“So there’s a significant opportunity for U.S. met coal growth independently of what happens in Australia,” Truman said.

Massey’s Hendriksen was cautiously positive: “Our outlook at this stage is that the demand for met coal seems to be sustainable for the next several years.”

Most U.S. met coal is in central Appalachia, and most of those reserves arein West Virginia – meaning that if U.S. met coal production rises West Virginia production is likely to rise, too.

West Virginia met coal exports came to about 12.6 million tons in 2003, including sales to Canada, according to the most recent detailed data from the U.S. Energy Information Administration. Most overseas sales at that time went to Italy, France, the Netherlands and Brazil, both from West Virginia exporters and from U.S. met coal exporters as a whole.

For West Virginia met coal exports to grow much, prices would have to go higher still and stay there, Truman said. And while global demand seems likely to remain strong, price depends not only on demand but also on the response of competing suppliers as well.

In addition to Massey, Truman mentioned Alpha Natural Resources, Arch Coal, Inc., CONSOL Energy Inc. and International Coal Group Inc. as major West Virginia producers that are positioned to take advantage of the strong market.

“I think in southern West Virginia we could see a little bit of an increase beyond what Massey has announced,” he said.

Massey has not yet said how many more miners it will need for its expanded production.

But with regard to employment, Truman said, “I’ve heard quotes as high as 10,000 more miners that would be needed over the next few years” in central Appalachia.

Most of that, he said, would be where most of the reserves are: in West Virginia’s southern coalfields.

Copyright State Journal Corporation Dec 14, 2007

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