Construction Boom Could Boost Demand for Met Coal

by | Nov 21, 2016

This article is included in these additional categories:

met-coalBusinesses that transport their goods via the highways, railways or the airways are likely to see an expansion of the nation’s infrastructure. That’s good news not just for companies that want to move their products in the most efficient manner possible. It may also be good news for a sub-set of the coal sector that produces so-called metallurgical coal for steel-making.

In other words, the more the infrastructure gets propped up or expanded, the more steel will be required. And since met coal is used to make steel, those coal producers may see a bump in their businesses. Already, the benchmark price of met coal has risen from a low of $70 in 2016 to about $270 a ton. The reason for the rise in price is not so much because of greater demand. But it is because China curbed the supply for several months, which put upward pressure on prices.

“This is the best news that Appalachia as a whole has had in about 10 years,” said Jason Bostic, a vice president at the West Virginia Coal Association, referring to Trump’s infrastructure agenda, in a Reuters story. “Suddenly there’s a little bit of hope here.”

Politically speaking, the Democrats favor increased spending on infrastructure, calling it not just a job created but also an essential step to maintaining American competitiveness. Republicans, by contrast have said such projects increased the national deficit and are generally opposed.

At issue as well is from where the steel would be made and purchased. If it imported from China that has produced it from Australian coal, then it would not bode well for American mining companies. That said, some domestic companies are upbeat for the time in years.

“The thing that has got me the most excited is the potential for infrastructure spending,” said George Dethlefsen, Corsa Coal Corp’s chief executive, told Reuters. “All those things are very energy- and steel-intensive, and that’s good for our business.” It is planning to increase production by 70% in 2017.

To be clear, met coal, commonly referred to as coking coal, is different from steam or thermal coal that is used to create electricity. Coking coal has had the impurities burned out, making it cleaner and also hotter — an ideal fuel used to make steel. Thermal coal, by contrast, still has the impurities still in it when it is burned, thus making it a dirtier fuel. The demand for thermal or steam coal has dropped precipitously because of the newfound discoveries of shale gas, which burn cleaner and which is just as cheap.

The hope — if that is the right word — is now in met coal. The outlook for thermal coal remains bleak even though a Trump administration has vowed to withdraw from global climate talks and to throw out the Clean Power Plan. Both of those focus on reducing the use of fuels that are heavy in carbon content and want nations to shift to cleaner burning fuels.

“Absent a return to 2008-vintage gas prices it is hard to see how marginal coal-fired resources have been given much more than a few extra years of life at most,” says Mark Repsher, an energy expert at PA Consulting Group.

“Interestingly, the new (Trump) administration’s desire to loosen gas and oil drilling regulations could have the unintended consequence of further depressing gas prices absent significant offsetting economic growth – creating a further dagger in the prospects of coal-fired resources long-term,” he adds.

American businesses will likely benefit from the infrastructure projects. It is less certain whether domestic coal developers will enjoy the same resurgence. But it does provide them hope.

Additional articles you will be interested in.

Stay Informed

Get E+E Leader Articles delivered via Newsletter right to your inbox!

This field is for validation purposes and should be left unchanged.
Share This