Washington (Platts)--27Jun2007

Ever-changing regulations, the high cost of raw materials and the increasing
labor shortage are just some of the challenges facing the US coal market,
according to industry executives.

The regulatory environment in the East is putting significant pressure on coal
companies, said Steve Leer, chairman and CEO of Arch Coal, at McCloskey's Coal
USA conference in New York on Tuesday. As an example he cited the court
rulings in West Virginia dealing with valley fills as a problem.

"There hasn't been a Section 404 permit issued since that Chambers decision,"
Leer said. A recent ruling by US District Judge Robert Chambers blocked
permits for valley fills, stopping production at four Massey subsidiary mines
in southern West Virginia. The Massey companies appealed and Chambers gave
them the right to continue mining where valley fill work had already started. 

But in a ruling just this month, Chambers ruled that any streams from the toe
of the valley fill that runs to the sediment pond are in the waters of the US
and protected by the Clean Water Act, and therefore, under the regulatory
jurisdiction of the Army Corps of Engineers. The stream cannot be treated as
part of a waste disposal system, the court ruled (PCT 6/15). 

Mining companies and the Corps are still analyzing the decision. The Corps has
not decided if it will appeal. 

Safety regulations are also getting more costly, the executives said. The Mine
Safety and Health Administration recently issued a new emergency seal rule
that will affect all mines. Mines could be shut down if the air behind the
seals doesn't meet requirements, said Leer. Suppliers will be required to
remove miners from the area until the seal meets regulatory approval.

"The ability to increase productivity is going to be extremely challenged," he
said.

The baby boomers retiring in droves are also affecting the industry, according
to Peter Socha, CEO of James River Coal.

The dwindling population in the Central Appalachian region is contributing to
labor shortages and productivity problems because coal companies like James
River and Massey Energy are recruiting from a smaller and younger population
that doesn't have the experience and knowledge of the older coal miners. 

Industry officers also cited the increasing costs of raw materials for spare
parts, concrete blocks, roof bolts and explosives as a concern. The prices are
rising due to the increased competition from the global market as China and
India ramp up coal-fired use to meet their growing energy demands.

--Regina Johnson, regina_johnson@platts.com