The global coal market is showing signs of a recovery as coking prices bottom out and Asian countries boost demand for the steelmaking and power plant fuel, according to Peabody Energy Corp. (BTU)
Demand may be increasing after a drop of 30 percent from a year ago in benchmark metallurgical coal prices, Peabody, the largest U.S. producer of the fuel, said in a statement today. Spurring demand are cold weather, bullish economic signals in China, low supply in India, global production declines and high natural gas prices in Europe, the company said.
Coal was battered in 2012 as a tepid world economy and lower U.S. demand from electricity generators caused by cheaper domestic natural gas caused a supply glut. As a result, producers from Appalachia to Australia tempered supply.
“Global production curtailments continued in the fourth quarter, with metallurgical and thermal coal suppliers announcing the closing or idling of high-cost mines,” Peabody said. “Cutbacks were announced in Indonesia, Australia and the United States.”
Steel consumption will increase 3 percent in 2013, boosting demand for metallurgical coal, Peabody said, citing World Steel Association figures.
U.S. coal consumption will increase 40 million to 60 million tons from 2012, Peabody said. Demand totaled 894.2 million tons last year, according to government estimates.
“Turning to 2013, natural gas prices have eased from recent highs in the fourth quarter but remain above prior-year levels, making natural gas uncompetitive with Powder River Basin coals for most U.S. electricity generation,” Peabody said.
Wyoming’s Powder River Basin contains the largest and least expensive reserves of U.S. coal. The variety found there is used to generate electricity, compared with the metallurgical or coking coal grade, found in Appalachia, which can also be used to make steel.
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