Coal news and updates

Industry veteran has found stable niche in turbulent coal industry

For almost half a century, Chuck Welsh has been selling coal.

One of three partners of independent coal dealer Castle Rock Carbon and Coal, Welsh has been in the coal business since 1968 — first for the railroads, then Peabody Energy, and now his own companies.

Welsh first went into business for himself in 1982 with his own coal sales company, but he has worked at Castle Rock, based in downtown St. Louis, for about five years. It mostly deals in metallurgical coals and coke used in steelmaking and foundries. However, a good portion of its sales are in thermal coal used for power plants and on-site power production in factories.

Castle Rock primarily works with small- to medium-size coal mines in Appalachia, where much of the country’s metallurgical coal, or met coal, production is based. Castle Rock does have some mine clients in Illinois and Colorado. Its niche is buying and selling specific types of higher-quality coal to industrial customers with special requirements. Castle Rock negotiates coal contracts and trades and deals in imports and exports. About 20 percent of its business comes from the secondary product of coal coke.

Welsh discussed the state of the coal industry with the Post-Dispatch last month. Here is an edited transcript.

Metallurgical coal spot prices have fallen some 60 percent since their 2011 highs of more than $300 per metric ton. How has the big drop in met coal prices affected your business and when might prices recover?

It’s been of assistance to us because the larger metallurgical producers have cut back in their production to a great extent. The people that we’re dealing with appreciate being able to do business with an aggressive company like ours. We find the niches in the markets for them and it’s worked out very well. We have had an increase in volume.

Our crystal ball tells us that prices might start to recover in about four to five months on the met side, because I personally believe the federal government with the new Congress is going to start spending more money on infrastructure as well as armament. We’re also going to have to outfit the harbors, especially on the East Coast and the Gulf to take care of the ships that are going through the Panama Canal that are going to be much larger, and therefore the ports have to be larger, and that’s going to take a lot of iron and a lot of steel.

They are building large ships now ... several of them will be launched before mid-summer of this year.

How is the U.S. market for met coal exports faring, and what’s your outlook for this year?

Exports were lower last year than they were the year before, due primarily to the continued low production of steel and iron for infrastructure in Europe. But Europe has begun to turn around, and I foresee Europe having a much better year starting in about four months than they had last year.

They are behind in some of the same things we’re behind in. They’re behind in infrastructure. They’re behind in expanding their ports. They are going to have to expand their armaments, and I think all of that will come to pass by mid-year.

The market is not going to increase substantially for U.S.-produced met coals due to the fact that met coals are produced in China and in Australia and have taken up quite a bit of metallurgical coal consumption in Asia, with the exception of Japan and Korea. I think we’ll see a lot of this coal going to India, but due to lower steel production in China right now, some of their met coal has begun to go to India as well.

What’s your assessment of the thermal coal industry and how has it affected your customers?

During the last couple of years it has regressed due to the low price of natural gas.

Many of the smaller industrial plants that use coal have been forced to convert to natural gas and other fuels due to rules that have been implemented by the federal Environmental Protection Agency. We’re seeing that some of these rules could possibly be relaxed because U.S. industry is finding out that we don’t have enough natural gas lines to take the natural gas that’s currently available.

The excess natural gas that we have right now will start to turn around and the pricing of natural gas will start to go up due to the fact that we’re going to begin to export natural gas to Europe.

The other problem that the utilities and industry are running into with natural gas is that they could only get short-term contracts with natural gas as opposed to annual and multiple-year contracts from the coal industry.

What is your outlook for thermal coal exports from the Illinois Basin and Appalachia?

The Illinois Basin coal pretty much takes care of itself. It will move to docks on the Ohio and Mississippi rivers and then down to New Orleans. They’re doing very well in that market.

The Appalachian coals are hampered due to the fact that the thermal coal from Appalachia is mined at much greater cost than the coal that is mined from most of the mines in Western Kentucky and Southern Illinois. That’s the big problem.

Plus, the seams of coal in Appalachia are, for the most part, smaller than the seams of coal in western Kentucky and Southern Illinois, which has a big impact on the cost of mining.

Appalachian thermal coal producers have been struggling for years, and many analysts expect market conditions to remain unfavorable for the foreseeable future. What’s your outlook for the coal region that powered industrialization, and what does that mean for your business?

I see a further decline in some of the lower-grade coals of Appalachia, especially in certain areas of Pennsylvania and northern West Virginia. But I also see a turnaround in probably 15 to 20 years when what are now competitive fuels will not be as competitive as they are now.

Keep in mind that we’ve got in this country a 200-year supply of known reserves of coal and an 80-year supply of known reserves of natural gas. And that will start to come into play over the next decade-and-a-half.

The future of this company is going to be primarily on the metallurgical side with some of the better thermal coals in Virginia and West Virginia that we will be selling mainly to the paper industry and the lime industry. And we’ll also be growing our business for coals mined in Utah and Colorado.

source: http://www.stltoday.com