- Associated Press - Saturday, March 18, 2017

CANONSBURG, Pa. (AP) - Contractors for Corsa Coal Corp. are busy digging a hole larger than a football field in Somerset County. Their goal is the Middle Kittanning seam - buried about 120 feet deep.

The Canonsburg-based company is on schedule to open its Acosta Deep Mine in May, with a plan for at least 70 miners to remove about three miles of metallurgical-quality coal - used in steelmaking - over the next decade. Starting a new mine in an era when many are shutting down feels good, said Robert Bottegal, Corsa’s general manager for engineering.

“There will be some more jobs in the area, which is great,” Bottegal said.

The number of bituminous coal mines operating in the United States plummeted from 1,010 in 2001 to 431 in 2015, according to the U.S. Energy Information Administration. Several trends drove the decline: Natural gas-fired electric plants replaced coal-fired operations, and weak demand for steel caused a five-year slump in international metallurgical coal prices - which fell from about $200 per ton in 2010 to a low of about $74 per ton in November 2015.

Prices rallied last year when China reduced working days at its coal mines from 330 days per year to 276, industry analysts said.

China loosened that restriction in November, causing met coal prices to fall from a peak of $300 per metric ton in Australia, a bellwether for international prices. The U.S. East Coast price peaked at about $230 per ton, dropping since to about $160.

Corsa plans to start hiring miners for the Acosta mine in five to seven weeks, said company CEO George G. Dethlefsen.

Despite the recent drop, he anticipates prices will stay high enough to make the mine profitable.

“The price of met coal has more than doubled in the past year,” Dethlefsen said.

Ramaco Resources opened a met coal mine in West Virginia in 2016 and plans to open another there this year.

The Lexington, Ky.-based company has been working for several years to obtain permits for a met coal mine in Washington County, where it hopes to reach about 8 million tons of metallurgical coal that remains in the Pittsburgh seam beneath Nottingham Township.

Ramaco recently went public, and officials declined a request for an interview but confirmed that they’re still working on obtaining the permit. They previously told the Tribune-Review that the underground mine would employ 40 people full time and could create as many as 150 jobs through subcontractors.

Betting on price trends is a gamble met coal companies make regularly.

Steam coal markets are dominated by multi-year contracts because their main customers - electric power plants - can reasonably guess how much coal they’ll need over the next couple of years, said Art Sullivan, a mining consultant based in Washington, Pa.

Steel producers don’t have that luxury.

“The users of met coal can’t see 12 months ahead,” Sullivan said.

The domestic market for met coal has been relatively flat, so the price fluctuations have been driven by international demand, he said.

“The met coal market is extremely sensitive, in particular, to China,” Sullivan said.

China produces about half the steel made worldwide. The U.S. market recycles more scrap metal to produce steel than China, so its demand for met coal is lower and relatively stable, said Hector Forster, a senior industry analyst with S&P; Global Platts.

“Really, the global coking coal market is driven more by China and China’s import appetite,” he said.

Last year’s price increase was driven mainly by China’s decision to reduce coal mine production, which created a shortage in the international markets, he said.

Speculation among market analysts is that China will reduce production again this spring, which will tighten the market again.

Most U.S. mining companies anticipate that met coal prices will stay higher than they’ve been and “spot prices, for the moment, show that prices have stabilized,” Forster said.

Sullivan is less optimistic, particularly for local met coal producers.

Somerset County has been a good source of quality met coal, but “the coking industry has found a way to make those coals somewhat less important,” he said.

Coke ovens convert a mixture of met coal and other coals into “coked coal” that is then combined with iron oxides and fluxes, which draw off impurities, to produce molten iron in a blast furnace. Every company has its own recipe for producing coke, and many have adjusted those recipes to use lower quality coal, Sullivan said.

Another factor is China’s reduced steel production. For the past decade, a Chinese building spree resulted in numerous “ghost cities” - places designed to hold hundreds of thousands of people but which remain vacant.

These empty cities, which Sullivan saw firsthand about five years ago, show that China can scale back its infrastructure spending, he said.

“I do not see the market being sustained for the next two to three years,” Sullivan said. “I think it’s going to be very difficult for the folks in Somerset County to have any long-term market to sell that coal.”

Corsa sees a long-term market because the prolonged price slump reduced the number of mining companies and discouraged the ones remaining from reinvesting in coal reserves, equipment and mining permits, Dethlefsen said.

That was apparent when prices surged in 2016 but production of met coal didn’t, he said.

“Because the industry was in such a fragile state, the industry struggled to produce the coal that would bring down those prices,” Dethlefsen said.

Once supply catches up to demand, the price will probably settle around $135 to $140 per metric ton, he said. That’s particularly true if President Trump fulfills his promise to clear the way for several pipeline projects and put more money into infrastructure spending and economic growth, Dethlefsen said.

Steel production in January was 7 percent higher than it was a year earlier, he noted.

“In the world of steel production, that’s a big, big move,” Dethlefsen said.

Trump’s promise to roll back regulations, including some environmental rules, also could improve conditions for coal mines - mainly in their ability to get permits, he said.

Still, “the No. 1 thing is economic growth,” Dethlefsen said.

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Online:

https://bit.ly/2mPAlNs

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Information from: Tribune-Review, https://triblive.com

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