At the end of last year, many economists thought the economic downturn would bottom out during mid-2009 and business would start to improve by the third quarter of 2009. Perhaps, a mid-year review is order. On a tonnage basis, current U.S. coal production stands at 553 million tons (See News, p. 7), a 5.5% year-on-year decline. No one doubts that the U.S. coal industry will experience its first decline in production in several years, but it is still on track to produce more than 1 billion tons of coal.
Similar to most mined commodities, spot coal prices have dropped 30% or more since the fourth quarter of last year. This is a simple supply-demand fundamental signaling soft market conditions. The seaborne metallurgical markets drove spot prices higher last fall. In reality, spot prices have only dropped to 2006-2007 levels. Even though the spot coal price swings are substantial, the good news is that they have either held or firmed in the last two months and the majority of U.S. coal is traded on a long-term contract basis.
Politically, the coal industry is facing an uphill battle. In Appalachia, the Environmental Protection Agency (EPA) has dealt a huge blow to the surface mine permitting process (See Breaking News, p. 6). Even though it is permitted legally, the future of mountaintop mining is stuck in a political quagmire. Some are worried that it could become contagious if the EPA does not clarify its position.
On a much larger scale, the American Clean Energy and Security Act (H.R. 2454), otherwise known as the Waxman-Markey climate bill narrowly passed the House of Representatives (219-212) and is now being debated in the Senate. Indiana Governor Mitch Daniels summed it up best in a recent Wall St. Journal editorial. In it, he referred to the Waxman-Markey climate bill as a tax on Midwestern states to pay for failed social programs in California and New England. If readers have not taken matters into their own hands yet, they should visit the National Mining Association Web site (www.nma.org) and use the ACT Online tool to contact politicians.
Finally, President Obama recently nominated Joe Main (See News, p. 14) to head the Mine Safety and Health Administration (MSHA). Similar to many Obama appointments, Main represents organized labor. He had a long career with the United Mine Workers of America. If he is approved, coal operators should give him the benefit of the doubt until he states his objectives for the agency. Why? There were other “less popular” choices to lead the agency and it’s difficult to imagine the relationship between MSHA and mine operators getting worse. He has to extend an olive branch on enforcement to get both sides moving in the right direction. The money that both sides are spending on legal fees needs to be redirected to improving mine safety.
As bad as it sounds though, the U.S. coal industry in general has faired much better than many other industries. The construction and automotive industries would have settled happily for a 5.5% slow down. Last month, the American jobless rate reached 9.5%. The U.S. coal business contributed to that figure, but only slightly. If policymakers continue to tax and over-regulate coal, that figure will surely grow.
Steve Fiscor, Coal Age Editor-In-Chief