By Keith Johnson
April 5, 2018 - President Donald Trump vowed to make U.S. energy dominance a cornerstone of his foreign policy, and, sure enough, the United States this year is producing and exporting record amounts of oil and natural gas. More surprising, though, is the huge resurgence in U.S. exports of coal to countries all over the world, from Argentina to Ukraine. It’s a big silver lining for the beleaguered coal sector that has seen production and exports steadily dwindle in recent years.
But it’s not such great news for U.S. steelmakers, who are watching global rivals gobble up American coal to feed their steel mills — and who then turn around and export millions of tons of steel to the United States, prompting the Trump administration to levy tariffs on lots of imported steel.
After several dismal years, U.S. coal exports surged by 60 percent last year to 97 million tons, not far from the record export numbers reached in 2012 when the domestic market for coal nosedived, according to new figures just published by the U.S. Energy Information Administration. Exports of both the kind of coal used for power plants and coal used for steelmaking surged, with double- or triple-digit growth to every continent. The top buyers of U.S. coal were India, South Korea, the Netherlands, and Brazil.
“The kind of exports you see now, to the extent they are being driven by organic forces, that’s a healthier scenario” than in 2012, says Kevin Book, the head of ClearView Energy Partners, an energy consultancy, which just published a detailed study of how the U.S. energy boom is driving greater energy exports.
The export boom is the one part of Trump’s pledge to help the coal sector that is coming true. Production ticked up a bit last year after a disastrous 2016 but is still at the lowest level since 1978. And despite plenty of promises to bring back jobs to coal country, coal mining employment only grew by some 1,100 jobs last year; mining employment is down about 40 percent since 2012. Meanwhile, closures of coal-fired power plants continue apace, with more than two dozen plants shutting down early last year alone, which means less domestic demand for coal.
In the rest of the world, though, coal is still widely used, and simple economics explain much of the turnaround and renewed appetite for U.S. coal. Increased demand for coal overseas led to slightly higher prices in 2017 compared with 2016, which made U.S. coal more competitive on global markets.
But it’s not just economics. The Trump administration’s energy and trade policies also seem to have helped drive a renaissance in coal exports — for now.
Reduced regulation for U.S. coal production, including fewer mine safety inspections and laxer environmental rules, has lowered costs for producers, especially in Appalachia, says ClearView’s Book. That can make pricier U.S. coal just cheap enough to warrant shipping it halfway around the world.
And Trump’s repeated calls for other countries to buy U.S. energy as a way to help correct skewed trade balances may have paid dividends, especially in Asia and Europe, Book says. On a visit to Poland last summer, Trump implored Central and Eastern European nations to buy U.S. energy, partly as a way to compensate for trade imbalances in other sectors. Polish imports of U.S. coal jumped more than fivefold; Ukrainian imports more than doubled.
U.S. coal is going to “markets where the U.S. has talked about energy exports as a trade balancer. Could there be a policy factor? I think the answer is yes, at least partly,” Book says.
The coal market has two very different pieces: the stuff that’s burned in power plants to generate electricity and the pricier, high-quality coal that many steel mills use to turn iron into steel. U.S. exports jumped in both categories last year, especially of the kind used in power plants. U.S. coal poured into places such as Spain and Poland, whose governments are promoting coal-fired electricity, and France, where nuclear power plant outages meant more reliance on coal-fired power. Countries including Japan, South Korea, and India also gobbled up big amounts of U.S. coal to keep the lights on.
But for the U.S. coal patch, the real money — and the bigger volumes — comes in sending overseas high-value metallurgical coal. And last year, thanks to storms that disrupted production and exports in Australia, the United States was able to step into the breach and ship off 55 million tons of coal, enough to make more than 40 million tons of steel.
“U.S. mines are higher cost production, so they come in when there are problems in the market,” says Jim Truman, the research director of global coal markets at the energy consultancy Wood Mackenzie. “The only reason exports increased was because of Australia.”
But the biggest markets for U.S. coal are the very countries initially targeted by the Trump administration this year with steel tariffs, since they export significant amounts of steel to the United States: Brazil, Japan, Ukraine, Canada, India, South Korea, and China. Other European countries including Germany, France, Turkey, and Italy also bought lots of U.S. metallurgical coal to fuel their steel mills.
The Trump administration’s steel tariffs could put a damper on some of those valuable coal exports. While the White House ultimately exempted many countries from the tariffs, it will still apply to big buyers of U.S. coal including China, Japan, India, and, Turkey, which together bought almost 14 million tons of U.S. metallurgical coal last year, one-quarter of the total sent overseas.
It’s not likely that U.S. steel mills will pick up the slack and buy much more domestic metallurgical coal, Wood Mackenzie’s Truman says, since most U.S. mills don’t need metallurgical coal to make steel. (They use scrap steel instead.) That means the Appalachian coal patch’s return to happy exporting days could be short lived, especially if Australia shakes off last year’s woes and regains its dominance of the market.
And the Trump administration’s other policies don’t look like they’ll end up helping coal much either. The push to increase exports of natural gas to Europe, Asia, and Latin America undermines the overseas market for U.S. coal, since both can be used to generate electricity. And as U.S. coal is shipped abroad, its price at home tends to rise slightly — making coal even less attractive as a power source there.
“Unfortunately, most of the policies the Trump administration is pursuing inside and outside of energy do not help domestic coal production,” Book says.
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