Whitesburg KY

Latest threat to coal: Colombian imports

Coal imports to the U.S. are rising sharply even as coalmines close throughout Central Appalachia.

A big reason: price. It costs $26 a ton to ship coal from Central Appalachia to power plants in Florida compared with $15 a ton to get coal from a mine in Colombia, according to research firm IHS Energy.

Labor costs are lower in Colombia, and it’s much more cost effective to move coal by ship, which can transport well over 50,000 tons of coal, than by train, usually made up of more than 100 railcars, each carrying only 100 tons of coal. In addition, a global coal glut has helped weaken prices for Colombian coal.

Coal imports surged 44% to 5.4 million metric tons during the first six months of 2014, compared with a year ago, according to Global Trade Information Services. Twothirds came from Colombia, which ramped up coal production and exported 24% more coal during the first five months, compared with the same period in 2013, the data provider said.

Total U.S. coal consumption is expected to increase 3% to 862 million tons this year, according to the Energy Information Administration. The expected rise reflects frigid weather earlier this year, which boosted demand at all power plants, including those relying on coal.

Southern Co., which has 63 coal-fired power generating units in four states, bought 25% more imported coal than expected, said Jeff Wallace, Southern’s vice president of fuel. The Atlantabased utility is burning more coal this year, due to a weather-related increase in electricity demand and higher prices for natural gas, which power some noncoal plants.

“We were able to avoid some of that expensive gas by burning more coal, some of which was imported,” he said.

JEA, a municipal utility in Jacksonville, Fla., has been buying coal from Colombia for several years to supply two plants on Florida’s Atlantic coast. Prices for Colombian coal have dropped this year, even dipping below prices for Illinois Basin coal, which JEA also buys, said Jim Myers, JEA’s fuel manager. “With the recent reduction in international prices, we’ve seen Colombian coal at a bargain compared to Illinois Basin,” he said.

To be sure, imports supply just 1% of U.S. coal consumption. Imports are “a niche market for coastal power plants,” said Vic Svec, spokesman for St. Louisbased Peabody Energy Corp., which mines in Wyoming and the Illinois basin.

But the imports are a factor, especially in Central Appalachia, where mining is typically more expensive because the coal seams are more mature and less rich. Alpha Natural Resources Inc., of Bristol, Va., said last month that it may close 11 West Virginia mines and lay off 1,100 workers.

The coal-mining company, which has been unprofitable since 2010, said imports from Colombia have added to its troubles. “Colombia produces a high quality thermal coal, it’s inexpensive to mine it and relatively inexpensive to ship it up our East Coast,” said Steve Hawkins, a company spokesman.

Colombia, which ha s coalmines near its coastal regions, has long been the U.S.’s largest source of foreign coal. This year, authorities in Colombia said the country’s coal miners would produce about 94 million to 97 million tons, up from a previous estimate of 89 million tons.

Drummond Co., of Birmingham,

Ala., which operates two mines in Colombia, is the biggest exporter of coal to the U.S. The company said it expects its coal production in Colombia to increase 19% this year to 27.2 million tons, and its exports to the U.S. to hold steady at two million tons a year. The closely held American company declined to comment further on why overall U.S. imports are up.

Weak coal demand in Europe— Colombia’s primary export market—and China, the world’s largest coal consumer and importer, have depressed global coal prices, leading to steep discounts for Colombian coal, power companies and analysts say.

For most of the year, Colombian coal has been selling to Eastern U.S. power plants for about $75 to $82 a ton, compared with $79 to $86 a ton for coal from Central Appalachian producers, according to IHS. International coal “has been oversupplied and has been looking for a home,” said James Stevenson, an analyst at IHS.”

The core markets for Colombian coal are along the Atlantic seaboard, the Gulf Coast and Alabama.

Low prices for international shipping have given Colombian coal an edge over higher-priced coal from Appalachian mines, said Steve Piper, an analyst at research firm SNL Energy, which issued a report last month about the trend. The Baltic Dry Index, which measures the cost of shipping bulk commodities globally, has fallen to one-tenth of its level five years ago. U.S. rail rates have mostly held firm over the same period.

The problem with shipping U.S. coal by rail is supply. U.S. demand for rail transport to ship crude oil, grain and other products has soared, limiting the number of railcars available to ship coal to power plants. Railroad companies are now adding locomotives and cars and making other improvements to allow more coal and other products to be shipped.

Jacksonville, Fla.-based CSX Corp., one of the country’s biggest rail operators, plans to add 100 locomotives to its fleet of 3,700, and it expects to ship a lot more coal later this year to meet utility demand, a company spokeswoman said.

Burlington Northern Santa Fe Corp., of Fort Worth, Texas, said it plans to buy 500 locomotives, 5,000 new railcars and hire 5,000 new operations employees to beef up service.

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