Black stuff: Alpha becomes latest US coal producer idling mines

Alpha Natural Resources on Friday became the latest US coal producer announcing cutbacks due to slackening demand.

The company will immediately mothball four mines in central Appalachia, plans to idle two more by early next year and scale back output at other mines.

The company cited coal-fired power stations being shut due to new emission standards in the US and utilities switching to natural gas as prices reach 10-year lows, as reasons for the decision. The lastest statistics from the EIA show US consumption of coal for power generation fell 8.2% in November compared to a year ago.

Declining use of coal for power generation is not just a short term phenomenon in the US.

According to US government forecasts the US electric power sector’s historical reliance on coal-fired plants has begun to decline. Over the next 25 years, the projected coal share of overall electricity generation falls to 39%, well below the 49% share seen as recently as 2007.

It’s not just domestic consumption that seems to be heading in the wrong direction.

Barron’s reported on Friday thermal exports, one of the bright spots for the US thermal coal industry has shown signs of softening, with November shipments down dramatically by 23% over the previous month:

With data over the next couple of months likely to remain negative (just released inventory data for November increased 11.5% to 169 million tons, now up 20% above the 10-year average, we expect the softness in thermal coal to continue.

While thermal coal will make up the bulk of the cutbacks, Alpha is also halting some 1.5 million tonnes of metallurgical coal production. Prices of coking coal has fallen in recent months as China’s steelmaking industry slows down. For the whole of 2011, total China coal imports still increased more than 16% year-over-year.

According to Platts, Australia spot met coal is priced just under $220 per tonne, versus a fourth-quarter met-coal benchmark of $285 per tonne. Central Appalachian thermal coal fetched about $67 per tonne in January. Appalachian production peaked in the Nineties and the slack has been taken up by Powder River Basin in Wyoming and Montana.

Alpha’s move follows that of Patriot Coal in January when it announced it will cut production of coking coal due to weakening global demand and idle three mines at its West Virginia operations.

The final quarter of last year saw a dramatic reversal in the fortunes of the US coal export industry.

Strong demand from Asia and Europe for steam and metallurgical coal pushed US coal exports up 35% in the first half of 2011 and was predicted to reach above 100 million tons for the full year, the highest level in nearly 20 years.

Longer term the outlook for coal is better.

Asian growth will pull coal from various areas, creating opportunities for the US to supply into the resulting gaps in the Atlantic and South American markets, according to John Eaves, president and COO of St. Louis-based Arch Coal, quoted by Platts.

“We think that’s where the US supplier can come in,” he said. “We’ve got good-quality coals, we’ve got good costs and infrastructure.” The cost structure and quality of met products will continue to make the US a big supplier to those markets for many years to come, according to Eaves. He is confident that by 2015 or 2016, the US will have capacity in place to export almost 250 million tons.

According the BP’s just released energy outlook, while overall fossil fuels’ contribution to primary energy growth is projected to fall from 83% to 64%, coal demand from developing nations will accelerate over the next 20 years.