Friday, February 15, 2013

Why Coal Demand is Falling in America

Besides the obvious attack by the government on the coal industry, with regulations resulting in high operational cost designed to cripple coal in America, there are some other reasons why coal has been diminishing in the midst of a surge in coal demand outside of America.

In states like Kentucky and West Virginia, for example, easily accessed coal has already been mined, resulting in higher costs to mine the thinner deposits.

The other major challenge is the discovery and supply of natural gas in America, which has resulted in cheaper energy, putting pressure on coal as a fuel source in the United States.

One area that coal should continue to do very well in is high-grade metallurgical coal, which is used to produce steel. This won't save the coal industry in America, but it will keep some regions of the country in good condition.

Another key element is the lack of export terminals to meet the growing demand of coal in every other country in the world outside of the United States. At this time there are projects in the works to build five coal export terminals in Washington and Oregon to help meet that growing need. Most coal companies benefiting from that will be producing in the western part of the U.S. It is uncertain as to how many of those will be built and how long it'll take to bring them to operational status.

Projections by the International Energy Agency show that coal demand will jump by 1.2 billion tons over the next several years, which should make it the No. 1 global fuel source at that time.

So while coal demand is falling in America, every other country on the face of the planet that uses coal has been increasing it as an energy source for their needs.

China is the driving force behind coal demand, with India boosting its coal usage as well. For the United States, at this time Europe is the biggest importer of coal from the country.

If this continues for years into the future, which it undoubtedly will, coal demand in America could rise again, but it'll take many years before that happens. For now, investors should look for coal companies positioned to primarily serve the Chinese market, as Chinese demand accounts for half or more of all coal demand in the world as of this writing.


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