Cool summer made coal stockpiles grow, dictating needs for more cuts in production, operators say

Despite large cuts in production, U.S. coal stockpiles have continued to grow in 2009. As supply of coal outpaces demand, industry officials are predicting more widespread production cuts in the next year, Kris Maher of The Wall Street Journal reports. A recent uptick in U.S. industrial activity hasn't been enough to raise depressed coal prices in the major U.S. producing areas.

The benchmark price for Central Appalachian coal, 20 percent of U.S. production, is down to $54 a ton from $111 last year, Maher reports. The benchmark price for Power River Basin coal in the West, 40 percent of production, is down to $8.25 a ton from $14.50. Coal stockpiles at utilities hit 199.7 million tons in September, up 37 percent from last year. Industry officials say they are more comfortable with utility reserves hovering around 140 million tons. (WSJ chart)

The summer of 2009 was relatively cool, creating less demand for air conditioning, and utilities' coal stockpiles increased for the first time in 25 summers, Maher reports. Though the industry cut 100 million tons of production this year, Kevin Crutchfield, chief executive of Alpha Natural Resources Inc., tells Maher he expects it to be cut by an additional 20 to 40 million tons in the first half of 2010. The Labor Department reported coal mining employment at 79,600 in September, down 7.5 percent from a year earlier. Small companies in Central Appalachia are expected to be the hardest hit by the downturn.

Some companies have turned to foreign markets to sell coal, and sale of metallurgical coal to steelmakers is up, but much of the coal needed to fuel the increasing Asian demand may come from outside the U.S., Maher reports. "For us it's really a tale of two markets, between a U.S. market where stockpiles need to be worked down, and where the growth will come in Australia feeding into Asian markets," Vic Svec, a Peabody Energy Corp. senior vice president, told Maher. (Read more)