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Industrial plans spur coal price spike

By Brian Bowling
TRIBUNE-REVIEW
Sunday, September 7, 2008

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Blizzards and floods half a world away have helped push Pennsylvania toward a coal-mining boom.

Efforts by China, India, Russia, Brazil and other countries to build their industrial bases and extend their electrical grids have raised prices in recent years, as demand started outstripping the worldwide coal supply.

Australia exports about one-third of the coal sold on the international market, but transportation bottlenecks caused by heavy flooding in January disrupted many of its coal-mining operations.

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China, which previously exported coal, has become one of the larger importers because of its rapid industrialization. In February, its coal mining and shipping operations were disrupted by some of the heaviest snowfalls recorded in the past 50 years. China started importing more coal to offset the losses.

Tom Hoffman, spokesman for Cecil-based Consol Energy, said the shortages in Australia and China boosted prices in the Asian coal markets, which encouraged South African and South American companies to divert coal from Europe to Asia. European buyers then started shopping in the United States.

The volume of U.S. coal exports -- about 80 million to 85 million tons -- is small compared to total coal production of about 1.2 billion tons. Exports, though, have forced local utilities to compete with Europe and Asia for coal, Hoffman said.

"It's less than 10 percent (of the total), but it's setting the price," he said.

Hoffman said the short-term price spikes haven't provoked much response from the coal industry, but the longer-term increases have Consol and other companies expanding operations. The potential for long-lasting coal price increases lies in the fact that China and other countries are years away from completing the build-up of industrial bases.

"You still have a billion-and-a-half people around the world who don't own a light bulb," Hoffman said.

Michael W. Sutherlin, president and chief executive officer of Joy Global, told industry analysts in May that his company estimates the gap between supply and demand will be 60 million to 100 million tons by the end of this year. The Milwaukee-based company's subsidiary -- Joy Mining Machinery of Warrendale -- is a main supplier of mining machinery worldwide; the parent company has a backlog of $2.5 billion worth of mining-machinery orders.

George Ellis, president of the Pennsylvania Coal Association, said the industry's main worry is how the next president and Congress will seek to regulate the emission of carbon dioxide and other greenhouse gases. Utilities buy more than 90 percent of the coal mined in the United States, and utilities don't like taking chances, he said.

"They want to know how each fuel source is going to be regulated," Ellis said.

Plans to build coal-fired power plants could change if federal regulations make another fuel source more economical, he said. The industry went through that in the 1990s after President George H.W. Bush signed the Clean Air Act, which pushed utilities toward natural gas as the fuel of choice.

Coal-fired power plants account for slightly more than half of the nation's electricity.

Brian Bowling can be reached at bbowling@tribweb.com or 412-320-7910.
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