Think President Barack Obama caused coal’s collapse? China may be to blame instead.
Coal-state elected officials have frequently pointed the finger at the president’s energy and environmental policies for the downward trend. However, according to an analysis by the Rhodium Group, which studies global economic trends, China’s slowing economy has played a role, too.
As China’s economic growth has cooled in recent years, so has its demand for steel. U.S. coalfields, especially in Appalachia, supplied China with the kind of coal used to make steel.
Called metallurgical coal, it differs from the kind used by electric power plants, and it also fetches a higher price.
Although only 7 percent of the coal produced domestically each year is used to make steel, it was selling at $200 a ton five years ago, compared with $50 a ton for steam coal, which is burned by power plants. Last year, metallurgical coal prices declined to $85 a ton.
Chinese steel demand experienced average annual growth in double digits from 2002 to 2012. Last year, it declined by 2 percent.
Chinese steel demand experienced average annual growth in double digits from 2002 to 2012. Last year, it declined by 2 percent.
According to the Rhodium Group analysis, U.S. coal industry revenue from metallurgical coal dropped by more than $28 billion from 2012 to 2015, while revenue from domestic steam coal fell by only $12 billion.
Coal companies now in financial distress invested heavily in metallurgical coal several years ago when China’s economic expansion showed no signs of slowing. Thus, coal producers were hit at once with a decline in demand domestically and overseas.
Last year, U.S. coal production declined 10 percent to 900 million tons, according to the U.S. Energy Information Administration, the lowest level in 30 years.
Central Appalachian mines, which produce much of the metallurgical coal exported to China, were down 20 percent last year.
Two companies that bet big on metallurgical coal in 2011, Arch Coal and Alpha Natural Resources, both have filed for bankruptcy protection.
Output from Central Appalachian mines, which produce much of the metallurgical coal exported to China, was down 20 percent last year.
To be sure, the nation’s coal industry has experienced a significant drop in demand for steam coal as utilities switch to cheaper natural gas or renewable energy sources.
Obama’s Clean Power Plan would require states to cut their carbon dioxide emissions by a third by 2030. About 30 states have sued the Environmental Protection Agency to block the plan, which the U.S. Supreme Court put on hold this month while a lower court considers the legal challenge.
The administration’s Stream Protection Rule could create more economic challenges for the coal industry, its opponents say.
While Obama’s policies have not helped coal, many economic factors have made it less competitive. According to the Energy Information Administration, the cost to transport coal by rail increased 14 percent from 2008 to 2014.
Yet, the agency noted, railroads still transport 70 percent of the coal burned by U.S. power plants, either exclusively or in part.
Curtis Tate: 202-383-6018, @tatecurtis