September 17, 2008 > New mines lag as coal booms in western Pa.
New mines lag as coal booms in western Pa.
By Brian Bowling, Pittsburgh Tribune-Review
Submitted By AP Wire Service
PITTSBURGH (AP), Sep 13 _ This is not your father's coal boom.
Record high coal prices suggest, and industry analysts and executives confirm, that demand for Appalachian coal is at an all-time high.
Yet that demand hasn't produced companies, jobs and new mines that a 1970s coal boom produced.
Pennsylvania mines are hiring hundreds of people, and plan to hire thousands in the next five years or so, but most of that hiring is driven by a need to replace a rapidly retiring work force. Total mining employment in 2007 inched up by about 140 jobs.
Coal companies have opened some mines, but they've shut down others and total coal production in the state dropped by 1.5 million tons to 65.8 million tons in 2007.
Industry officials and state mine regulators agree that the number of mining companies is, if anything, shrinking.
So where's the boom?
It's at PBS Coals, which has laid 8.2 miles of railroad track in Stonycreek in Somerset County, to reach the preparation plant it's refurbishing so it can ship out more coal.
It's at Joy Global, parent company of Warrendale-based Joy Mining Machinery, which had a record $1.2 billion worth of orders for mining equipment in April, May and June and has a $2.5 billion backlog of machinery orders.
It's at Cecil-based Consol Energy, which is upgrading the Bailey Mine in Greene County, and the Shoemaker Mine, which straddles the West Virginia border into Washington County, to boost production. Bailey produced about 10 million tons of coal in 2007. Shoemaker recently reopened after improvements to its coal transportation system.
Consol spokesman Tom Hoffman said fundamental shifts in financing and environmental regulations since the 1970s have changed how the coal industry responds to price increases.
``We're bringing stuff on, but it doesn't happen as fast as a nonindustry observer would think,'' he said. In the 1970s, ``a guy with a couple of bulldozers and a couple of trucks could open a coal mine pretty fast.''
Now a new mine takes seven to 10 years to develop, and even a simple expansion takes two to three years, Hoffman said.
Coal prices were on their way up when an unexpected shortage of coal in China and Australia goosed the numbers into triple digits and has European utilities and steel manufacturers buying more East Coast coal.
Luke Popovich, spokesman for the National Mining Association, said coal executives from Central Pennsylvania were ``almost giddy'' when he bumped into them during an industry conference held in New York in July. The strong market demand has been aided by a weak U.S. dollar because all coal, like all oil, is traded in American dollars, he said.
For the first time since ``globalization'' became an industry buzzword, U.S. coal companies clearly are beneficiaries of foreign trade.
``It's a complete reversal of the manufacturing profile in the United States,'' Popovich said.
Bill Raney, president of the West Virginia Coal Association, said the boom isn't producing many new faces among operators, but it has brought in investors and companies wanting to be part of the boom.
``There's a lot of interest in buying mines and reserves and consolidating the industry,'' he said. ``Suddenly, coal mines have the attention of Wall Street.''
In August, OAO Severstal, Russia's biggest steelmaker, said it would buy PBS Coals in Somerset County, to secure a guaranteed source of increasingly expensive raw material.
Raney said another example is the bidding war between two other large steel companies _ ArcelorMittal of Luxembourg and Cleveland-Cliffs of Cleveland _ for Alpha Natural Resources of Abingdon, Va. Another is Patriot Coal of St. Louis buying Magnum Coal of Charleston, W.Va., to become the largest coal producer in West Virginia.
Raney said a fundamental part of the coal economy _ long-term contracts _ has kept coal companies from seeing the rapid growth in revenue that would pay for new mines and expansions.
Most coal sold today is selling at prices negotiated two to five years ago when the average price was closer to $35 per ton instead of the current $100 to $150 per ton, he said. As those contracts expire, coal companies can renegotiate higher long-term prices or sell more coal on the short-term market, but that's a trend that will take place over the next several years, Raney said.
Meanwhile, coal companies have seen the same rapid increases in costs for fuel, steel and other supplies, so their profits haven't increased as fast as the short-term coal prices, he said.
Jim Thompson of Knoxville, Tenn.-based Energy Publishing and the Coal & Energy Price Report, said Central Pennsylvania companies have been more able to take advantage of the price increases. Many of these companies mine coal whose characteristics straddle the line between most of the coal burned in power plants and the higher-value coal used to make steel.
For years, a stagnant market for metallurgical coal forced these companies to sell to local utilities for relatively low prices, he said. The same foreign economic development driving up the demand for coal has increased the demand for steel. The higher-quality metallurgical coals are selling for upwards of $300 per ton, so steel companies are buying the lower quality coals in Pennsylvania for $100 to $150 per ton to help cut their costs.
Because those companies typically had shorter-term utility contracts, they've been able to free up more coal sooner to take advantage of the higher prices, Thompson said.
Ernie Thrasher of Xcoal Energy & Resources, a Latrobe-based coal export company, said the increased prices have boosted the bottom lines of Central Pennsylvania companies, allowing them to renovate and expand operations.
``It has quite a multiplying effect on the local economy there,'' he said.
Hank Parke, business development director for PBS Coals in Friedens, said the long-term trend has the company expanding its operations.
``Just this year, we will probably add at least 160 new jobs,'' he said.
Given the time and cost involved in developing a mine, the recent jump in coal prices doesn't influence those plans, he said.
``Whenever we make a decision to expand, it's based on long-term trends; it's not based on blips on the radar screen,'' Parke said.
PBS Coals thinks the boom will last several years, but since most of the factors driving it are international, that's far from certain, he said.
Hoffman said he doesn't expect to see a rash of new mines from the recent price spikes because it takes several years to get an underground mine up and running in Pennsylvania.
``The question for coal companies considering new mines isn't the market today but what it will be like eight years from now,'' he said.
Consol and most other companies only add mines when they need more production to fulfill long-term contracts, he said.
``You base your decision on adding capacity on whether you see customers stepping up and signing contracts. That's what would convince the bigger coal operators to go on with a lot of new projects,'' Hoffman said.