Coal Prices For Steelmakers Jump On Massey WVa Mine Explosion
April 09 2010 - 6:12PM
Dow Jones News
Prices for metallurgical coal, a key input in steel production,
jumped this week after a fatal explosion forced Massey Energy Co.
(MEE) to shut a West Virginia mine, squeezing an already tight
market for the commodity.
The Upper Big Branch mine disaster takes supply off the market
at time of strong Asian demand for the higher quality coal and a
rebound in steel production in the U.S., Brazil and Europe.
Massey was scheduled to ship 1.6 million tons of metallurgical
coal from the Upper Big Branch mine this year, equal to about 3% of
total U.S. production last year. The Richmond, Va., producer said
Friday it will increase production at other mines, but doesn't
expect to replace all of the lost production from Upper Big Branch
this year. The company said it couldn't predict when the mine might
reopen.
With production at the Massey mine down since late Monday,
prices have risen sharply. A weekly U.S. index compiled by Energy
Publishing Inc. showed spot prices for so-called high volatility
metallurgical coal at the port in Hampton Roads, Va., a major coal
shipping center, jumped 22% in the last week to $241.67 a metric
ton. The Knoxville, Tenn.-based publisher tracks spot deals and
surveys buyers and sellers to arrive at the indexed price.
"The outlook for [metallurgical] demand continues to be pretty
strong. Prices have run pretty significantly in recent days,"
Calyon Securities analyst David Lipschitz said Friday.
The blast at the Massey mine Monday killed 25 workers, making
the explosion the worst U.S. mining disaster in more than two
decades. The disaster forced steelmakers into the spot market to
secure additional tons amid concerns over near-term supplies.
Annual demand for metallurgical coal among U.S. steelmakers
totals about 20 million tons, and U.S. coal producers traditionally
export an additional 20 million to 40 million tons a year, said
Gerard McCloskey, chairman of The McCloskey Group, a consultancy
and news provider focused on the global coal industry.
McCloskey expects U.S. exports to reach 50 million tons this
year amid strong global demand and weather-related supply
disruptions in Australia, the world's largest coal exporter. Even
before the Massey mine disaster, the market had tipped from "very
tight to one where everyone can't make the steel they want to
make," McCloskey said.
Indicative of the booming demand from steelmakers, U.S.
producers of metallurgical coal have been taking the rare step this
year of shipping coal to Asia, a trade route that previously hadn't
been economical. In the meantime, mining giant BHP Billiton Ltd.
(BHP.AU) managed to secure quarterly agreements with Japanese steel
mills for a 55% price increase, showing the leverage that producers
wield.
In the U.S., Lipschitz doesn't expect steelmakers to face
shortages of metallurgical coal that will force them to cut
production. Instead, the impacts will be centered on pricing, with
the question becoming whether steelmakers can pass through the
higher costs to their customers, or if their margins will be
squeezed by the higher coal prices.
Representatives of the steel industry declined to comment on the
impact of the higher coal prices.
-By Mark Peters, Dow Jones Newswires; 212-416-2457;
mark.peters@dowjones.com