Chinese stimulus spending could revive US coal

A raft of stimulus spending on infrastructure projects in China could lend much needed succor to America’s enervated coal industry.

According to the China Daily plans for big spending on infrastructure unveiled last month by the country’s National Development and Reform Commission (NDRC) could raise the overall outlook for the American coal sector, with the construction of roads, railways, ports and airports boosting demand for metallurgical coal in particular.

Analysts with Dahlman Rose & Co. observed last week that margins on the spot market for China-made steel products have risen by 30% since July, which could boost both coal and iron ore demand and their respective spot prices.

The global coal market has been hit hard by ailing demand in China, whose imports of coking coal fell 22% year-on-year to 2.6 million metric tonnes in August. Growth data for the third quarter has sustained the dim outlook for the Chinese economy, with a fall to 7.4% in line with pessimistic appraisals by analysts.

Coal spot prices have also plunged, slashed almost in half from a record $330 per metric ton at the outset of 2011 to $170 just recently.

According to Luke Popovich, spokesman for the USA’s National Mining Association, “demand from China is so great that its coal imports affect the global market.”

Metallurgical coal dominated US exports last year at 70 million short tonnes, and declines in imports by China have triggered closures of mines in the core coal region of Appalachia.