Foreign coal is a threat, but US producers are finding ways to compete

Competition from foreign coal producers could displace as much as 9 Mt/a (10 million stpy) of US coal bound for power plants located near waterways. But, according to a Maryland-based coal consultant, it could be worse. Theoretically, about 52 Mt (57 million st) of domestic coal could be vulnerable to imports by 1990, said Forrest Hill, of Hill & Associates of Annapolis. Hill was speaking to about 150 coal industry executives and experts at the third annual Coal Marketing Strategies Conference in November. Most were at the Denver, CO conference to pick up tips on how to sell coal in an oversupplied market. Imports threaten domestic markets Of the 200 utilities studied by Hill and his staff, 119 are situated near major waterways, he said. However, most of those waterways are not equipped to handle coal from the shipping lanes. Good news for US coal producers. But don't breathe too easily. Foreign coal still poses a major threat to domestic markets, Hill continued. The strength of the US dollar is an obvious factor. But easy access to US utilities located on waterways combined with low rates for ocean vessels give foreign producers another edge. And foreign mines are typically low cost producers. For example, Hill said Colombia's huge Cerrejon mine can deliver coal to an Illinois power plant for $47.87/t ($43.39 per st). That compares to $52.85/t ($47.95 per st) from a Kentucky coal mine. Also, Colombian coal producers can generate a cash flow even if the coal sells for $27.50/t ($25 per st). The main competition US producers face from abroad, as Hill sees it, comes from Australia, Canada, Colombia, Poland, South Africa, and, perhaps, from Venezuela. Domestic producers, however, do have some things going for them. Most US coal buyers, Hill said, "are not wild about the idea of buying foreign coal." A 10% price advantage or pressure from public utility commissions would be needed to force some of them to buy foreign coal, he said. Some of the utilities contacted said they would not commit to more than one-third of their stockpiles to a foreign source. Another advantage for US producers is that they have room in their long-term contracts to cut prices and still maintain a profit, Hill said. Railroads, too, have high profit margins written into their rate structures. They are also aware of the import threat. Therefore, they may reduce their rates accordingly to keep their markets. Marketing's role The energy price shocks of 1972 and 1976 caused major adjustments in world economics. Coal was no exception. High oil prices caused many utilities to look at less expensive coal. As the market improved, coal prices began to respond, said R. Gale Daniel, of Anaconda Minerals Co. But clean air legislation and the strengthening dollar caused havoc in the coal markets, he said. The price of oil crashed, taking with it predictions of record coal use. The result is an oversupply of coal that has led to price cutting. Now, coal marketing must be recognized in its "true leadership role," Daniel said. Marketing people must know when to use spot sales to balance production objectives and maintain cost-effective-