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Virginia coal’s
tough new competition
by Mark Pownall
for Virginia Business
March 2003
Related
Story:
- Prayer for the coalfields
When
Virginia coal producers bemoan their dropping exports,
they should direct some of their ire Down Under, and
maybe to the Middle Kingdom, too. Already the world’s
biggest coal exporter, Australia continues to eat into
the U.S.’s and Virginia’s $18 billion share
of coal exports.
There’s
not much hope that the Old Dominion will catch up anytime
soon. Since 1985, Australia has solidified its leading
position with low cost surface mines. Also contributing:
the weak Australian dollar, which has depreciated from
around 80 cents U.S. to below 50 cents U.S. during the
early part of 2002. The cheaper currency makes the Australian
product an even better buy.
Australia’s
mining industry produces the world’s lowest cost
coking and steam coal. In particular, it has high grade
coking coals used in making steel. This is the very
type of coal that used to lead Virginia’s coal
exports since the Southwestern coalfields have big stores
of top-grade metallurgical product. U.S. exports of
coking coal have more than halved between 1997 and 2002,
dropping about 30 million tons to an estimated 17 million
tons in 2002. At the same time, Australian exports have
captured most of the world’s projected growth.
With 104 million tons in 2002, Australia has 50 percent
of the global market and exports should expand to 120
million tons in 2007.
Virginia,
by contrast, saw its export market of all types of coal
dip from 19.2 million tons in 1990 to only 9.4 million
tons in 2000. That year Korea, Italy, France and Brazil
were the biggest importers. Back in 1990, those countries
imported significant quantities, but so did Japan, the
Netherlands, Spain, Canada and Belgium, whose take of
Old Dominion product has since slumped significantly.
Australian
producers keep seeing their productivity improve. According
to Barlow Jonker Pty.Ltd, an international coal consulting
firm, average annual productivity gains have been 8.4
percent since 1991, with 13.1 per cent achieved since
1998. “While a portion of the improvement is from
new mines and equipment, the major gains are from changed
employment,” says Barlow Jonker Associate Director
Bill Simes. “We now see enterprise agreements for
each site, a greater use of contractors, numerous contractor-run
mines, an end to seniority in job selection and so on.”
Meanwhile,
the outlook for both iron ore and coking coal sales
has
been buoyed by the continuing strength of the steel
industry, particularly in China and Japan. The wild
card in the international coal market is China, already
a major export player and a country with significant
reserves. Mark Dougan, editor of China Coal Report,
believes the country can increase exports and imports
of both metallurgical and thermal coal. In the short
term, the domestic market is very strong so exports
out of China will shrink, but longer term this could
easily be reversed. Indonesia and Brazil are also strong
competitors in the global market.
China’s
way of doing business, however, has some U.S. coal producers
fuming. They believe that the Chinese can beat down
prices on the global market because they pay their workers
little and have almost no regulation. “I don’t
mind the competition from Australia. They pay their
people and run safe mines,” says Don Blankenship,
president and CEO of Richmond-based Massey Energy, the
fifth-largest coal producer in the U.S. “But the
Chinese will kill 10,000 people a year in coal. They
pay pennies a day and we pay $30 an hour.” Trade
publication Coal Week International has a much lower
estimate of annual Chinese coal-mining deaths —
about 4,800 last year. Last year, only 67 miners died
in the U.S.
Even
so, the point is clear: Virginia and the U.S. are unlikely
to regain former shares of the world market. There could
be a temporary spike in exports if a war with Iraq sends
petroleum prices soaring. In 1979, for example, the
Iranian crisis and oil price spikes had more than 100
coal ships waiting for pier space at Hampton Roads.
Longer term, however, there will be no level playing
field in the global coal market.
With
Peter Galuszka in Richmond
Return
to Virginia Business - March 2003
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