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forecast 2013 continued ment (74%), mine development (57%), permitting (51%) and mine development (48%). Equipment upgrades have taken a priority over new equipment for the second consecutive year. When asked how their money would be allocated on a percentage basis, the respondents said 32% of their money would be spent on new equipment and 26% would be spent on equipment rebuilds (See Figure 6). When asked about their capital budgets, 44% of the respondents reported they would spend less than $10 million this year. A total of 15% said they would spend more than $100 million; 24%, $10-$25 million; 9%, $25-$50 million; and 8%, $50-$100 million. This year 68% will spend $25 million or less. Last year that figure was 47%. Obviously, a lot of major purchases and investment plans for various projects have been tabled. Coal operators expressed a lot of frustration in the survey. When asked: What will affect the U.S. coal industry the most and how should it prepare? Nearly half of the respondents (47%) cited EPA overreach (or the EPA War on Coal) and another 12% referred to the Obama administration. A significant group (16%) said low natural gas prices. Very few had constructive ideas on how to prepare. A common answer was: Pray. A sampling of several of the responses, which were fit for publication, are offered anonymously on page 24. When asked about what specific issues will affect the coal industry the most in 2013, the obvious, overwhelming response was power plant regulation. Politics and policy and the economy remained more of concern than prices. Reading between the lines, the miners are saying that prices and the economy do not matter if they can't operate a mine or their customers are not allowed to burn coal. Limited production capacity was the least of their concerns. Domestic Market Softens, While Exports Improve As mentioned previously, total U.S. coal production for 2012 decreased of 6.9% to 1,016 million tons from 1,089 million, January 2013 Figure 7—Survey Demographics a 73-million-ton decline. Coal production for the top three states, Wyoming, West Virginia and Kentucky, fell by 8.7%, 8.2% and 13.2% respectively. Wyoming dropped below 400 million tons for the first time in several years and Kentucky fell below 100 million tons for the first time in decades. Illinois and Colorado, on the other hand, posted some respectable positive numbers, 24.4% and 10.3% respectively. The American economy is powered by electricity and coal demand will increase when that manufacturing base begins to grow again. The EIA estimates coal consumption in the electric power sector totaled 829 million tons in 2012, the lowest amount since 1992. Lower natural gas prices led to a significant increase in the share of natural gas-fired generation. The EIA expects the coal share of total electricity generation to rise from 37.6% in 2012 to 39% in 2013 and 39.6% in 2014, as natural gas prices rise relative to coal prices. Higher natural gas prices, coupled with slightly higher electricity demand, will lead to an increase in coal-fired generation. Natural gas prices currently stand at $3.494/mmBtu, $0.786/mmBtu higher than one year ago. Natural gas prices have declined steadily from $5.599/mmBtu in January 2010 to $4.499/mmBtu in January 2011, then to $2.708/mmBtu in January 2012, before bottoming out in April 2012 at $2.048/mmBtu. Delivered steam coal prices averaged $2.39/mmBtu in 2011, a 6% increase from 2010. Seeing natural gas prices move higher brings a sense of relief to the coal market, but gas producers could easily flood the market again. Unlike years past, natural gas is expected to remain abundant. Coal stocks at electric utilities remain high, in the 180 million ton to 190 million ton range, which dampens coal prices for prompt deliveries. During 2012, spot prices for coal dropped by double digit percentages for all regions except Illinois Basin. With the exception of Western bituminous, they have not dropped as low as 2009. As an example (See Figure 3), December 2012 spot prices for Northern Appalachian (NAPP) coal decline to $63/ton from $73.30/ton. CAPP prices were $68.15/ton compared to $76.30/ton last year; Illinois Basin $47.90/ton vs. $50/ton last year. Prompt prices for PRB had dropped considerably to $10.45/ton from $12.50/ton. Western bituminous decreased to $35.75/ton from $41/ton. U.S. coal exports reached a record 124 million tons in 2012. While coal demand should remain brisk abroad, prices for met coal are not expected to increase substantially, barring any supply disruptions. Many of the U.S. ports are handling coal at maximum capacity, which would also preclude any surge in exports. Based on this information, Coal Age believes total U.S. coal production will decline by an additional 4% in 2013, which would be 41 million tons, dropping total production to 975 million tons. That would be the first time U.S. coal production has fallen below the 1billion-ton threshold since 1993. While this is certainly a negative trend, those who follow coal markets should bear in mind that the U.S. will still mine nearly 1 billion tons of coal. www.coalage.com 25