Good news for hard-hit coal country

WITH the coal industry in bad news overload, Hogsback thought it was time to hunt down some good news. While this may smack of a Mission Impossible movie challenge, two gems did emerge.

Staff Reporter

The first was in the familiar shape of the pin-stripe suited Bernard J. Guarnera, chairman of mining industry consultancy Behre Dolbear Group.

The second came from a far less familiar source, an energy consultant speaking at a conference in New York.

Interestingly, both men touched on the same subject and arrived at a broadly similar conclusion, albeit for different reasons.

Regular readers may remember Guarnera previously being dubbed by The Hog as “the most optimistic man in the coal world”, thanks to his unrelenting confidence in the outlook for coal.

That tag was first used when Guarnera was asked at the Mines and Money conference in Hong Kong earlier this year whether he was hopeful of a coal price recovery.

“Nothing has changed,” he famously said in March. “People want a higher standard of living and that means they want electricity, and that means they must have coal.”

After that forecast it looked like he was wrong. Coal prices continued to tumble, pits closed, and the threat of US coal exports flooding the global market caused an outbreak anxiety across the coal world.

In London this week, at that city’s edition of the Mines and Money circus, The Hog asked the same question of Guarnera and got much the same response, with an added twist of assurance.

Surely, went the question, you cannot still be confident, after so much bad news compounded by the threat of a US coal-export flood.

“Yes, I am,” Guarnera said.

“There won’t be a US coal-export flood because government regulators will not allow it to happen.”

For close followers of the coal business, that comment is particularly interesting because if the US government is opposed to a big increase in coal exports that could remove an overhang from the global coal market.

So why is Guarnera so confident of a curb being applied to the US coal surplus hitting the traditional markets of countries such as Australia and Indonesia?

“Environment officials are opposed on the grounds that shipping coal overseas represents the export of carbon and that’s against US regulations,” he said.

“In the US today they’re trying to build three new coal export terminals and they can’t get approval because of complaints about exporting carbon.”

Coal, according to a man who knows more than most about the stuff, is not entering some sort of terminal price decline. It has just paused for a breather because a slowdown in the global economy has reduced demand, not because of an underlying problem in the economic fundamentals.

It is a courageous call but it is also one that sits surprisingly comfortably with the second coal-demand tipster who was considering the same US coal export question, but from a different perspective and in a different city.

In New York, at the Coal Trading Conference, an analyst from HIS Cera listed five proposed coal export terminals planned for the Pacific northwest coast of the US – but also raised doubts about whether all, or any, of them would be built.

James Stevenson was quoted by the Australian Financial Review newspaper as questioning whether there was a strong business case to support the export-terminal plans.

“I think in general there’s substantial white elephant risk,” Stevenson said. “None of these terminals to date are going to be underpinned by large-scale sales to Asia.

“Without firm coal sales contracts there was a significant risk that the proposed new terminals would be significantly under-utilised.”

Neither man can see a quick end to the coal over-supply situation in Asia where the market is currently grossly over-supplied.

However, over the next 6-12 months, greater producer discipline will see a return to a better balance between supply and demand.

As that happens, coal may enjoy an outbreak of normality ... fingers crossed.