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GOOD TIMES FOR COAL AND COPPER

Editorial Focus by Harold Hough Aug/Sept 2008

These are good times for coal and copper, despite recent low prices and predictions that they weren’t critical to the 21^{st Century economy. In fact,
billions of dollars will be spent in the next few years to expand the production
and use of both copper and coal.}

Copper prices are so good that a new Israeli copper mine is being built where ancient Egyptians mined copper 6,000 years ago. AHMSA, a Mexican steel company, recently opened the Arava Mine in Israel’s Negev Desert to mine copper ore. The plan is to start major production in 2010 and produce 22,000 tons of copper a year.

Arava started operating a pilot project 11 months ago, and is awaiting building permits for the larger operation. So far, between $30 and $35 million has been invested and additional equipment will be installed through mid-2009. Eventually, $200 million will be invested in this ambitious project if AHMSA Steel receives financial assistance from the Israeli government. The current plan is to export all of the copper produced from this mine to Asia, but some Israeli companies are interested buying the copper rather than being dependent on copper imports.

One reason a Mexican company wants to develop an Israeli copper mine is the dramatic change in the copper market in the past few years. It was once said that when the American economy coughed, the copper industry got sick because America used so much copper in its highly developed infrastructure. However, that’s changed and copper producers are looking overseas for business.

The growing economies in Asia are the driving forces behind copper’s growth in the early 21st Century. As Asian populations become more prosperous and move into the “middle class,” their demand for copper in electrical appliances, housing, and communications grows. The Israeli Arava copper mine will be closer to markets like India and will be quite competitive, especially given high transportation prices.

COAL

Another booming commodity, that was once a pariah, is coal. Not too long ago environmentalists were predicting coal’s demise as an energy source due to pollution concerns. In fact, the years of the Clinton presidency saw an aggressive push to make coal powered electricity more expensive and overly regulated. However, coal is now being exported to Arab oil countries that are anxious to use it as a low cost alternative to petroleum. And, coal is being touted as a substitute for foreign produced petroleum thanks to the Fisher-Tropsch process that can turn coal into a liquid fuel similar to conventional jet fuel and diesel.

An example of the changing role of coal was the recent announcement that Pike County, Kentucky, will be the home to a $4 billion coal-to-liquid fuel plant. The facility will produce 50,000 barrels of fuel a day. The plant will take five to six years to complete after construction is started.

Renewed interest in coal means that prices have jumped. Europe is paying $110 a ton for Eastern States power plant coal. The Midwest’s Illinois Basin coal is up to $70 a ton as more power plants build the pollution controls necessary to use this high sulfur coal.

However, the big demand is for Powder Basin Coal in Wyoming. Although it is a cleaner burning coal and is easier to mine, it has less energy per ton, which means more is required. And, should the demand be there, Montana has vast untapped coal reserves that can easily tie into the rail and transportation hubs that were put in place to ship Powder River Coal.

If there is one cloud on the horizon for coal, it is the threat of carbon laws that restrict the use of coal. Although both presidential candidates McCain and Obama have advocated the use of coal, coal companies are leery of investing in mine development until the November election. Cap and trade rules or carbon sequestering requirements could make coal less attractive, even with sky-high oil prices.

However, those concerns are for the future and it is questionable if such legislation could even pass in an environment of high gasoline prices and a revolt of taxpayers and drivers against regulatory restrictions on producing more energy. In the meantime, however, two commodities that were once pariahs a few years ago are enjoying a new lease on life.