Crisis slams coal prices.HOUSTON — A few months ago, coal was riding high alongside oil and natural gas, in demand with lofty prices.
But as with the other fossil fuels, coal prices have fallen amid the global economic crisis and shrunken demand even from its biggest fan, China.
"China matters because China is the world's largest producer and consumer of coal," Pearce Hammond, an analyst with Simmons & Company International in Houston, said last week.
He said demand weakness stands out in China, which became a net importer of coal last year, because its industrial production rose by 8.2 percent last month, the smallest gain in seven years. In September, that production rose 11.2 percent, Hammond said.
But most alarming, he said, is a 17 percent drop in China's crude steel output, signaling a significant contraction in demand for metallurgical coal, the kind used to make steel. The kind used to generate electricity is called thermal coal.
In addition, Hammond said, President-elect Barack Obama and the increased Democratic control of Congress will present challenges to the industry in terms of carbon dioxide emissions regulations and a possible nationwide renewable portfolio standard, a requirement that electric utilities generate a specified amount of power from renewable sources.
The price of Central Appalachian coal on the New York Mercantile Exchange has fallen to less than $80 a ton from its July peak of $143.25. Simmons said the price of coal first made a notable jump in 2004 when it doubled to $60 a ton.
China's hunger for coal had been a boon for U.S. coal exports because it added coal generation capacity equivalent to the United Kingdom's electric grid last year and nearly that much in 2006.
Hammond said the outlook for U.S. coal exports has become "very opaque" as China is using less and stockpiling more.
Another factor is an 80 percent fall in global shipping rates, which allows coal from Australia, the world's largest exporter of the fuel, to be transported farther and compete in markets where U.S. exports thrive.
Francisco Blanch, an analyst with Merrill Lynch, said in a report to investors this month that growth in global coal consumption in recent years has been generated entirely by emerging markets like China, while use in more developed countries remained steady.
But a global downturn in construction has reduced steel prices by 40 percent, leading steel producers to cut output, Blanch said.
Thermal coal demand is down as well. Blanch said power production in China, which gets most of its electricity from coal, has fallen to negative 4 percent from 19 percent growth at the beginning of 2008.
"The dramatic weakening in global economic activity, the steep falls in steel production, and the sharply lower power generation in Asia certainly do not bode well for coal demand in the first half of 2009," Blanch said.