GOOD TIMES FOR METALLURGICAL COAL
Coal Bin article by Harold Hough
While the coal industry fights off attempts by the Obama Administration to destroy it, there is at least one segment of the industry that is experiencing good times – metallurgical coal. This sector, which has seen a lot of up and downs over the last 150 years (mostly downs), is experiencing a market where demand is outstripping supply.
The resurrection of the metallurgical coal industry can best be seen in the recent announcement that the New Elk coal mine west of Trinidad, CO is reopening. Toronto-based Cline Mining Corp. purchased the mine last year. The company estimates that when up and running, it will produce 300 million tons of coal a year, roughly three trainloads a week. "That will occur some time after 2011 and then we estimate that we will be mining at that rate for up to 20 years," mine manager Ron Thompson said. The mine will produce metallurgical coal that will primarily be exported to Asian countries, including Japan, Korea and China.
The New Elk Mine isn’t the only American operation expanding its metallurgical coal production. Massey Energy recently announced that the company was developing a new mine to produce metallurgical coal in West Virginia. The company will spend between $100 million and $160 million through 2012 at the Rowland reserve
The reason for the strong demand is China, which has few domestic metallurgical coal deposits necessary for high quality steel. China is in the middle of a massive infrastructure building that includes a high speed rail network. As a result, China’s demand for metallurgical coal is expected to be 100 million tons per year. Other nations importing metallurgical coal in 2010 included India (30 million tons) and Brazil (14 million tons). Japan, Korea and Taiwan required another 94 million tons. While export demand is expected to increase by 20% in 2011, the supply is only expected to increase by 13%.
Metallurgical, or coking, coal is critical for steel production. It is first converted to coke through heating the coal in an oxygen free environment. After the coke is produced, it is added to iron ore in another high-temperature environment to produce iron. Every ton of steel made in a traditional blast furnace requires 0.6 tons of metallurgical coal, according to the World Coal Institute. Approximately 66% of all steel is manufactured using this method.
This new demand is a welcome change for the industry. The coke industry was once a major market for coal, accounting for about one fourth of U.S. coal consumption as recently as the late 1950s according to the US Department of Energy. Since then, coke production has fallen dramatically and its share of total coal consumption currently is about 4 percent because of a decline in the U.S. iron and steel industry, the principal consumer of coke. In general, the iron and steel industry now requires less coke because it produces smaller amounts of raw steel, relying on imports of finished and semi finished steel to help meet its needs, and because improved blast furnace technology has reduced the amount of coke needed to produce a ton of pig iron.
However, metallurgical coal remains an important part of the metals industry. Foundries use coke as a source of heat for producing metal castings. Other industrial uses of coke include the smelting of phosphate rock to produce elemental phosphorous and the production of calcium carbide. Small sizes of coke, termed breeze, are used as fuel in sintering finely sized particles of iron ore and other iron bearing material to produce agglomerate that can be used in a blast furnace.
In the past Australia has been the chief provider of metallurgical coal for export. But, that is changing. They exported 140 million tons in 2010. However, plans to boost exports by a further 80 million tons a year may not fully materialize due to delays in port expansion. There is also the new “Resources Super-Profits Tax” being discussed by the Australian government, which would impose a new tax on profitable mining companies and hinder the development of new coal mining projects.
The result is a break for American coal companies, which have the reserves of metallurgical coal. In addition, American ports have more capacity to export coal in the short term. It won’t be a return to the glory days of the mid 20th Century, but it will mean more profits and employment in an industry that the Obama Administration seems intent on killing.