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US coal miners seen slow to respond to price rally

US coal

Some US coal miners like Corsa Coal in Pennsylvania are quicker to respond to the improved market. The company has recently increased its work schedule from four days a week to 5.5 as coal prices increased. Corsa Coal photo.

US coal miners seen slow to respond to price rally

By Nicole Mordant

US coal miners specializing in steel-making coal will be slow to lift output, even with prices tripling so far this year, as they need to renew operations shuttered during a five-year price collapse that pushed many into bankruptcy court, industry watchers say.

Delays in bringing on new supplies of steel-making coal, also known as metallurgical or coking coal, are expected to help keep global prices higher for longer.

With operating costs higher than their Australian peers, U.S. miners typically bring supply online when prices rise and are cut back when they fall.

“Given how decimated the whole industry has gotten over the last two to three years, there is just not a lot of ready-use production that could come online,” said Jeremy Sussman, analyst at Clarksons Platou Securities in New York.

Analysts and executives said many idled mines would need capital infusions for equipment purchases and mine development, such as waste rock and soil removal that were deferred before they were shut down.

The surviving U.S. miners, some of which are only now emerging from bankruptcy, are expected to be cautious in making any big financial outlays.

Prices for Australian premium hard coking coal have surged from around $70 a tonne in February to more than $250.

Boosted by China’s government curbs on domestic production, the trend has lifted shares of miners like Canada’s Teck Resources Ltd and Australia’s Whitehaven Coal Ltd.

The turnaround comes after prices collapsed from above $300 a tonne in 2011, which helped push U.S. producers, such as Arch Coal Inc and Alpha Natural Resources, to seek bankruptcy protection.

U.S. producers are likely to hike coking coal output by around two million tonnes by year-end, driven mostly by miners adding work shifts at existing mines, said Dale Hazelton, an analyst at consultancy Wood Mackenzie in Annapolis, Maryland.

Two million tonnes would be equivalent to about a 6 per cent increase on the 32 million tonnes of U.S. metallurgical coal exports that Wood Mackenzie had forecast previously for 2016.

“(Miners) are doing what they can to get the extra tonnage without a big commitment of money, capital, people,” Hazelton said.

For example, Corsa Coal Corp recently increased its work schedule from four days a week to 5.5 at two of its underground mines in Pennsylvania and Maryland, said Chief Executive George Dethlefsen.

The small U.S. producer is also weighing whether to restart its idled Horning mine in Pennsylvania, but would need to see prices stay high for a while in order to do so, he said.

At its 2012 peak, the United States exported 63 million tonnes, according to the U.S. Energy Information Administration.

The total size of the seaborne market is about 300 million tonnes, more than half of which is supplied by Australian mines.

Wood Mackenzie’s Hazelton believes prices of between $140 and $150 a tonne for six months to a year would be enough to prompt U.S. producers to re-open mines.

But he also warned that when the price comes back down, “it is going to be the U.S. that falls back out of the market.”

(Reporting by Nicole Mordant in Vancouver, additional reporting by Susan Taylor in Toronto, editing by G Crosse)

Ph: 432-978-5096 Website: www.mapleleafmarketinginc.com

Ph: 432-978-5096 Website: www.mapleleafmarketinginc.com

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