Producers see US moving from swing to 'strategic' coal supplier

Miami (Platts)--3Feb2012/1253 am EST/553 GMT

As global demand for coal continues to rise, some producers see the US graduating from being a swing supplier to become a strategic supplier to world markets.

The optimism from producers speaking Thursday at the 12th Annual Coaltrans USA conference in Miami, Florida, is spurred by the growing industrial and power demand out of China, India and, to some extent, South America.

"Is the role of America as a swing supplier still valid? I say absolutely not; we think the US is going to be a strategic supplier into the world market for many years," said John Eaves, president and COO of St. Louis-based Arch Coal.

According to Eaves, demand for steel will lead the way. He quoted statistics from the World Steel Association which estimates steel production to grow about 60% over the next decade. Eaves said steel will be made from blast furnaces that will use about 40 million-50 million tons of met coal to churn out roughly 75 million tons of steel.

"This will provide tremendous opportunities to anybody well-positioned in terms of met supply in the US and around the globe, especially if you already have good reserves, transportation and a good infrastructure," Eaves said.

On the power side, he said there is about 250 GW of coal-fired generation being built globally that is expected to come online between now and 2015 requiring about 800 million tons of new coal demand. He said that given what is on the drawing board now, it's probably closer to 450 GW or 1.4 billion tons of new coal demand.

Asian growth will pull coal from various areas, creating opportunities for the US to supply into the resulting gaps in the Atlantic and South American markets, according to Eaves.

"We think that's where the US supplier can come in," he said. "We've got good-quality coals, we've got good costs and infrastructure." The cost structure and quality of met products will continue to make the US a big supplier to those markets for many years to come, according to Eaves. He is confident that by 2015 or 2016, the US will have capacity in place to export almost 250 million tons.

"That's about 100 million tons off the East Coast, Gulf and southern capacity of about 100 million tons," he said, adding that "clearly every port operator in the West is looking at expansion opportunities and being very aggressive about it."

That optimism also was expressed by John Hanou, president of Hanou Energy Consulting.

Hanou said high-sulfur Illinois Basin coals were picking up the slack from the falling production and permit problems besetting Central Appalachian coal.

George Dorsey, president of Ridley Terminals International in British Columbia, touted the ability of western ports to meet that growing demand. Dorsey said that Ridley, with the help of US interest, has doubled the amount of coal it ships out to Asian markets. Capacity at Ridley is about 12 million mt and the terminal is expanding to be able to ship out 24 million-25 million mt, with a longer-term expansion taking it to 29 million mt of capacity.

In 2011, Arch signed a deal to ship Powder River Basin coal from Ridley to Asian markets.

--Regina Johnson, regina_johnson@platts.com

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