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Global glut keeps B.C. coal industry in check

Bruce Constantineau, Vancouver Sun, August 18 2015

Analysts see modest recovery ahead, with India as prime market

VANCOUVER — There is good news and bad news for B.C.’s beleaguered coal industry.

First, the good news. A series of staggered three-week shutdowns at Teck Resources’ six coal mines will end soon, with five B.C. mines and one Alberta operation returning to full production in early September.

But more potential bad news looms, as outlined recently in a brief, ominous note in Teck’s second-quarter results.

“Further steps to reduce production may be taken in the fourth quarter unless the supply-demand balance in the market improves,” the company said.

Industry analysts doubt the supply-demand balance will improve any time soon.

A global coal glut has forced the price of metallurgical coal down from a high of US$330 a tonne in 2011 to less than $100 a tonne now, with mine closures and company bankruptcies becoming a common coal industry theme.

U.S.-based Walter Energy — owner of two idled northeastern B.C. mines — filed for bankruptcy protection last month while New Zealand’s largest coal-mining company, government-owned Solid Energy, entered bankruptcy last week.

Most B.C. coal mines produce metallurgical coal used for making steel. Reduced demand from Asian buyers and increased output from Australian suppliers have been cited as major factors in the precipitous price decline.

“It’s going to take several years to really get the (metallurgical) coal markets back in an equilibrium state where supply and demand is more balanced,” said Wood Mackenzie energy analyst Joe Aldina.

“I think prices are close to bottoming out but there could be more structural changes coming in terms of bankruptcies, reorganizations, mine shutdowns and different owners (taking control) of coal companies.”

He doesn’t expect Teck to cut back its coal production even further this year because it appears the company can make a “slight positive cash flow” at today’s coal prices.

“We’re not calling for them to ramp down production any further but in this market, all bets are off,” Aldina said.

He feels more production cuts are needed worldwide because the global coal market is oversupplied by about 20 million tonnes annually.

Scotiabank commodity market specialist Patricia Mohr expects only a modest recovery in coal prices next year, as the market deals with the recent “massive” expansion of Australian coal production and the downturn in steel production in China, the world’s largest producer of carbon steel.

She said one bright spot for the coal industry is the increase in steel production in India, as that country looks to boost its infrastructure development.

“India is the growth market for metallurgical coal going forward,” Mohr said.

Australian government forecasts predict India’s metallurgical coal imports will reach 52 million tonnes this year, compared with 48 million tonnes for Japan and 45 million tonnes for China.

Tumbler Ridge economic development officer Jordan Wall said coal mine closures and the resulting job losses have clearly hurt the northeastern B.C. community. He said government officials don’t keep statistics on Tumbler Ridge’s unemployment rate but feels it’s “definitely higher” than other communities in the region.

The city initiated an economic diversification strategy about five years ago, with tourism and wind power being the main drivers.

Pattern Energy is building a $400-million, 185-megawatt wind power project in the area that’s expected to be operational by 2017. The project has created about 175 construction jobs and will leave about eight or nine permanent jobs when it’s finished.

Wall said tourism to the region should be boosted by a recent UNESCO decision to give Tumbler Ridge a “Geopark” designation because of its unique geological assets and recently discovered dinosaur tracks and bones.

“We’ve just finished building a new visitor centre and in the past two years, the visitor numbers have grown from about 2,000 in 2013 to an estimated 8,000 this year,” he said. “Of course, we’d love the coal industry to come back. We’re not trying to diversity away from natural resources. We’re just trying to diversify into other natural resources as well.”

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