The 2014 outlook for domestic iron ore producers is bright, with demand strong and prices steady or increasing, but domestic metallurgical coal producers are struggling with low prices, environmental issues and regulatory constraints.
Cliffs Natural Resources Inc., an iron ore supplier to much of the North American steel industry, expected a strong finish to 2013 and anticipates continued strength in 2014. The company reported third-quarter sales of 6.3 million tons from its U.S. operations, down slightly from 6.6 million tons in the same period a year earlier. The Cleveland-based company, which mines iron ore in Minnesota and Michigan for the domestic steel industry, expects to post U.S. iron ore sales of 22 million to 23 million tons in 2014, in line with the companys annual average for the past five years. Cliffs pointed out that a significant portion of U.S. iron ore volume is contracted for the next decade. The company also expects to book sales of nearly 6 million tons from its eastern Canadian iron ore operations. Besides supplying North American steel customers with domestic iron ore, Cliffs also exported 1.8 million tons in the first three quarters of 2013, about half of it destined for customers in Europe.
Peter Kakela, a professor of resource development at Michigan State University in East Lansing and the nations foremost authority on domestic iron ore production, is optimistic about the industry going forward. Last year was a pretty solid year for iron ore demand in North America ... and I dont see any reason to ratchet those expectations down for 2014. And I certainly dont see prices going down, he said.
Kakela based his predictions on a North American economy that seems to be picking up steam and pent-up demand that is fueling light vehicle sales. I know Im wearing rose-colored glasses, he said, but the outlook does seem pretty good.
Meanwhile, metallurgical coal producers are struggling with a host of price, environmental and regulatory issues. Several of the better-known names in the industry spent the year trying to stem losses.
Birmingham, Ala.-based Walter Energy Inc., a producer of metallurgical coal for the global steel industry, reported a third-quarter net loss of just over $100 million, a marked improvement from a $1.1-billion loss in the same period in 2012. Chief executive officer Walt Scheller said he was pleased by the progress in reducing costs, improving productivity and increasing met coal sales. Walter Energy actually increased its sales of metallurgical coal by about 200,000 tons in the third quarter, but the price of hard coking coal it sells to the market slid 32 percent to an average of $134 per ton from $197 a year earlier.
Alpha Natural Resources Inc., another major supplier of metallurgical coal, posted a third-quarter net loss of $458 million, substantially worse than a $46-million loss in the same period in 2012. The Bristol, Va.-based company reported metallurgical coal sales of 15.7 million tons for the first nine months of 2013, slightly ahead of 15.4 million tons a year earlier. But Alpha, like many metallurgical coal producers, also produces thermal coal for the nations electric utility industry, and domestic electric utility consumption fell sharply in 2013.
Part of that drop was due to tougher environmental and regulatory constraints on burning coal, a major whipping boy for most global warming activists. But thermal coalalso known as steam coalis as much a victim of the unprecedented flood of domestic natural gas unlocked from shale deposits across the United States. Using hydraulic fracturing and horizontal drilling techniques unknown a decade ago, energy companies are producing a glut of natural gas that is increasingly competitive with coal in utility power plants. Electric utilities in Ohio and Pennsylvania have begun to mothball coal-fired plants because abundant gas from the Marcellus shale underlying the two states is cheaper and more environmentally compliant than the Appalachian coal that has fueled utility boilers in the region for more than a century.
Alphas situation is typical of the trend. The companys shipments of Powder River Basin and eastern steam coal during the first nine months of 2013 totaled more than 50 million tons, down 26 percent from 67.6 million tons in the same period in 2012.
Rep. Tim Murphy (R., Pa.), chairman of the Congressional Steel Caucus, worries that the increasing drop in steam coal mined and shipped in the United States will be mirrored by equally significant losses of metallurgical coal volumes.
There is a bright future for coking coal, Murphy told attendees at the 17th Annual Met Coke World Summit in Pittsburgh in November, but Im concerned that its future is overseas because our federal government is pursuing an environmental policy based not on science, but ideology.
Murphy noted that metallurgical coal consumed in U.S. coke batteries had dropped to 22 million tons in 2012 from 94 million tons in the early 1970s, attributing a large part of the decline to the transition from blast furnace steelmaking 40 years ago to electric-arc furnaces, which make more than half of U.S. steel today. But the decline, he said, also has been spurred by the U.S. Environmental Protection Agency, which has saddled the industry with ever-higher regulatory hurdles and escalating energy costs.
Still, none of the producers is about to give up on providing metallurgical coal to the U.S. steel industry. Underlying strength in the nations steel industry also is making metallurgical coal producers optimistic about 2014. Alpha Natural Resources estimates that its metallurgical coal production this year will total between 18 million and 22 million tons, equal to or ahead of 2012 and 2013 tonnages. The company pointed out that metallurgical coal shipments should increase to the steel industry in the developing world, where steel use has increased 44 percent since 2007.