Coal Age

JAN 2013

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forecast 2013 continued can be considered an economic indicator. The EIA expects total generation of electricity to remain largely unchanged in 2013 and to grow by 0.8% in 2014. Regulatory uncertainty and low natural gas prices kept utility fuel buyers thinking short term. At one point during May 2012, coal and natural gas consumption reached parity for the first time. Even though utilities burned through considerable coal stockpiles in late summer and early fall, spot coal prices fell to their lowest levels in at least four years. The EIA believes that an increase in natural gas prices in 2013 will lead to increase coal burn. With coal stocks remaining high, coal production is still expected to decrease next year. In addition to supply and demand fundamentals, the survey asked coal operators about their feelings, the amount of money they plan to spend this year, and how they intend to spend it. The survey also asked them to rank issues affecting the industry. A similar openended question, designed to identify possible overlooked issues, elicited an overwhelmingly similar set of responses that singled out the Obama administration, the EPA and other federal agencies as trying to drive the coal industry out of business. Last year, the respondents expressed negativity, anger and frustration. This year, the responses were measurably worse, peppered with expletives. Mines Will Cut Costs to Survive Until the Climate Changes Coal Age contacted 662 readers and received 97 completed surveys. The demographics largely resemble the U.S. coal industry. The majority of them (84%) produced bituminous coal. Subbituminous, lignite and anthracite accounted for 14%, 7% and 1% respectively. As far as production capacity, most of the respondents represented large mine operators (more than 5 million tons, 51%), followed by medium (1-5 million tons, 32%) and small (less than 1 million tons, 17%); 42% described themselves as underground coal operators exclusively, while 23% said they only operated surface mines. The remainder (35%) said they worked January 2013 Figure 3—Current Spot Prices for Coal ($/ton) Btu/lb lb SO2 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Northern Appalachia 13,000 3.0 $101.50 $52.50 $70.00 $73.30 $63.00 Central Appalachia 12,500 1.2 $81.55 $57.40 $72.75 $76.30 $68.15 Illinois Basin 11,800 5.0 $78.00 $40.50 $47.50 $50.00 $47.90 Powder River Basin 8,800 0.8 $13.00 $9.25 $13.60 $12.50 $10.45 Western Bituminous 11,700 0.8 $73.00 $40.00 $41.00 $41.00 $35.75 Source: EIA/Platts Coal Outlook Weekly Price Survey Figure 4—Productive Capacity: At what percent of your total capacity do you expect your company will operate in 2013? 2008 2009 2010 2011 2012 2013 Less than 90% 43% 58% 68% 50% 61% 79% 90% to 100% 57% 42% 32% 50% 39% 21% for a company that mined coal using both surface and underground techniques. Similar to years past, most of the respondents said their coal went to electric utilities (68%). The remainder said their coal was destined for steel mills (20%) or industrial boilers (12%). Steam coal is the overwhelming use for the majority of U.S. coal production. Never before in the history of the Forecast Survey have so many respondents expressed a pessimistic outlook. A whopping 73% of the respondents are looking at 2013 with pessimism. Only 10% of the respondents were optimistic. Of the executives surveyed, 48% thought coal production would decrease in 2013, while 26% felt production would increase and 27% said production would remain the same. That is a complete reversal from the typical responses received over the course of the last 10 years. Last year, for example, 48% of the respondents thought 2012 coal production would increase and 12% thought it would decrease—what a difference a year makes. Looking ahead to 2014, 42% of the respondents see the market staying the same and the rest are evenly divided (28% vs. 30%) as to whether it will increase or decrease. The question regarding productive capacity generated a similar pessimistic response (See Figure 4). A total of 79% of the respondents thought their mines Figure 5—On a scale of 1 (not very important) to 5 (extremely important), how do the following concerns rate? Figure 6—Average Expenditure Allocation 1. Power plant regulation 2. Politics and policy 3. Economy 4. Prices 5. Bonding & permits 6. Retiring workforce 7. Limited capacity 8. Other (4.53) (4.44) (4.36) (4.21) (3.72) (2.82) (2.58) (2.33) www.coalage.com 23

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