U.S. coal boom slows in 2008, '09 a question

NORFOLK, Virginia (Reuters) - After struggling to keep up with soaring coal exports through the first 10 months of this year, U.S. coal shippers now face the prospect of a serious slowdown due to the worldwide economic slowdown.

"We're seeing a little bit of a dip," Jeff Yates said in his office on the edge of the sprawling Lambert's Point terminal that he runs for Norfolk Southern Corp (NSC.N).

The shift could be dramatic. As recently as last month, the terminal was so busy that eight oceangoing ships were waiting at anchorage to come in. This week, the wait list was zero, and only three coastal barges loaded the day of a Reuters tour.

In October, Lambert's Point, the biggest U.S. export terminal, did twice the tonnage it did in October 2007. Now, the terminal will spend much of November in maintenance instead of loading ships.

"November's not going to be a very good month for us," said Charles Brinley, who runs a smaller competing terminal, Dominion Terminal Associates, in nearby Newport News.

Yates said it is too early to call the slowdown a trend, but attendees at a U.S. coal industry conference this week in nearby Portsmouth were glum about industry prospects.

"What a difference a year makes," said Harry Papadopoulos, coal and emissions director for NRG Energy, told the McCloskey "U.S. Coal Imports and Exports 2008" conference.

A year ago, with the world enjoying an economic boom, lots of new coal-fired power plants planned and, importantly, coal-powered China growing at 10 or more percent a year, the coal industry was euphoric.

There was talk of U.S. exports -- less than 50 million short tons in 2006 -- reaching 100 million tons in 2008. Shippers started planning terminal expansions because they saw capacity as too limited for the coming U.S. coal flood.

Now, forecasters say U.S. exports are slowing and will do well to reach 80 million tons. Power-plant coal prices have fallen from $140 a ton to around $80. Steel-making coal, $300 a ton mid-year, is forecast at $200 or less in 2009.

While 2008 will still be a very good year for the industry, dreams of expanding U.S. terminals to serve an anticipated explosion in U.S. exports are dead for now.

"The expectations were greatly exaggerated," said trader Frank Kolojeski of New Jersey-based TransGlobal Ventures.

In recent weeks, steelmakers around the world have announced production cutbacks as high as 20 percent and power plant operators are now bracing for less electricity demand, expecting to need less and pay less for coal.

As with oil, the "screen jockeys," a derisive industry term for nonphysical coal traders who supercharged coal's boom, have fled.

But even before signs surfaced of an impending slump, coal veterans were saying the U.S. mine, rail and port infrastructure -- long focused on the 1.2-billion-ton U.S. domestic market -- could not ramp up that quickly.

The skeptics have been proven right. All three Norfolk area terminals are falling short of hoped-for numbers.

Lambert's Point was expecting to ship 20 million tons. Now 19 looks more realistic. DTA hoped to ship 16. Now 14 would be good. Kinder Morgan's (KMP.N) Pier IX planned to ship 10 million. It now expects to do 9.6 million tons.

Baltimore had equipment problems, New Orleans hurricanes and Mobile other issues, said Adam Anderson of T. Parker Host, a leading coal country shipping agency.

Most of the shortfall so far has been a result of problems coordinating mines, railroads and ports. Mines have had production problems. Railroads and ports have had scheduling issues. There have been a few equipment breakdowns.

Momentum will carry the coal industry forward for a few months. Multiyear contracts have been signed with overseas customers, and lots of 2009 deals already are in place.

But what happens after that is unclear. One question is whether buyers, pressed by a weak economy, will try to get out of deals they made, Kolojeski said.

"I'm not of the 'Chicken Little' philosophy," said Mark Bower, a coal management executive for Norfolk Southern. "I'm a little more sanguine. But who knows?"

(Editing by Christian Wiessner)