HOUSTON, Nov 13 (Reuters) - Cutbacks in steel production due to the world economic crisis have sent a shiver through the metallurgical coal market, but there are reasons for optimism, industry officials said Thursday.
U.S. producers, who were selling metallurgical coal for $300 a short ton as recently as two months ago, are now likely facing average prices of $200 a ton in 2009, said Jim Thompson, managing editor of Coal & Energy Price Report.
That is still more than twice the U.S. price as recently as 18 months ago, even after steelmakers around the world announced 15 to 20 percent production cuts, and strapped financial players left the coal market, he said.
“The party’s not over,” Jack Porco, president of Alpha Coal Sales LLC ANR.N, told a McCloskey conference on U.S. Coal Imports and Exports 2008. “The bottom line is that the world continues to need coke.”
Coke, the concentrated carbon blended with iron to make steel, is made by baking coal in an oven. It requires higher grade coal than the steam coal burned to run power plants, which sells for a third to half the price of coking coal.
Metallurgical coal fundamentals remain strong because the developing world needs steel to grow and developed nations are likely to spend more on public works to soften the current economic slump, Porco said.
Because booming China soaked up so much metallurgical coal, the world outside China has added enough coke-making capacity to boost world metallurgical coal demand by 52 million metric tonnes a year.
Nearly three-fifths of that new coke-making capacity — and resulting metallurgical coal demand — is located in the Atlantic basin, which is served by U.S. producers, Porco said. (Reporting by Bruce Nichols; Editing by Walter Bagley)