With reporting season almost over for the September quarter, most leading coal company chiefs have managed to extol the virtues of the current market with an eye carefully trained on the future.
"Favourable marketplace conditions continue to support our 2006 and 2007 projections. Coal pricing remains strong in all markets and the outlook for Central Appalachia's high quality coal is exceptional," Massey chief Don Blankenship said.
Massey said it was not aware of any domestic or worldwide conditions that would threaten current pricing levels for coal and it had continued to commit tonnage into 2007 and 2008.
Massey attributed sustained high prices to the persistently robust economic growth in China, continued global demand for coking coal while supply continued to be hindered by infrastructure issues, and the promise of increased electricity demand in the US.
The country’s second-largest coal producer, Arch Coal, said it saw US coal markets strengthen throughout the third quarter.
“Coal stockpiles at US power generating stations fell to their lowest levels in decades. The recent hurricanes in the Gulf of Mexico put further pressure on already stressed crude oil and natural gas markets,” Arch chief Steven Leer said.
“Prices for premium coal from the Powder River Basin of Wyoming climbed steadily throughout the period to levels approximately 200% higher than when the year began,” he said.
Coal has also managed to compete with rival fuels – Arch estimated that it was four to five times more expensive at present to generate electricity using natural gas than it was using coal.
“Even after supply catches up with consumption levels, utilities will face a multi-year effort to rebuild coal stockpiles to more satisfactory levels,” Leer said.
Arch estimated that at the end of September power plants had about 30 days’ coal on hand, down 25% on average levels over the past five years.
Consol Energy chief Brett Harvey said increasingly good contract prices for Consol would kick-in over the next few years.
“"The continued improvement in contract pricing is reflected to some extent in the improvement in average realised prices for the September 2005 quarter, but it is reflected even more so in the improvement in pricing we are able to secure for coal being sold in the next several years," Harvey said.
He said demand for high-Btu bituminous coal in the US was likely to remain strong for the next several years, based on expressions of interest for multi-year contracts at today's market prices by electric power generators.
Consol said conditions suggesting that high-Btu coals would remain in tight supply were the continued growth in demand for electricity, historically low inventory levels at power plants, low inventories at mine sites, low rates of capacity expansion in the bituminous coal production areas and logistical challenges in moving meaningful additional coal from distant western production areas to the eastern United States.
"We expect to execute a steady, disciplined growth strategy for coal in the next three years, matching our increases in production capacity with market demand," Harvey said.
He said most of the capacity increases would come from efficiency projects that also lowered the unit cost of coal production, as well as from smaller additions to capacity at various operations in Central Appalachia.
The world’s largest private-sector coal company, Peabody Energy, was also enthusiastic in its projections.
"Global coal use will set another record in 2005, coal-fueled generating plants are being built around the world, metallurgical coal remains in high demand, and projects are being developed to convert coal into natural gas and transportation fuels," Peabody chief Gregory Boyce said.
Peabody said market growth was being fueled from generating plants under development worldwide, totaling 460,000MW representing 1.5 billion tons per year of coal demand.
Over the next two years alone, more than 100,000MW of new coal-fueled generation capacity is expected to come online around the world.
