US-based coal producer Alpha Natural Resources is set to idle 11 surface coal mines in West Virginia that produce nearly 5.44m tonnes of thermal coal annually, which will result in a significant cut back in shipments to Europe, the company said.
The move has been triggered by persistent weakness in the United States and overseas coal demand and depressed price levels, along with US government regulations that are causing electric utilities to close coal-fired power plants and forego new construction, Alpha said in a statement.
The mines could be idled by mid-October, depending on whether the coal they produce for next year can be sold.
“It would take out nearly 5.44m tonnes of annualized thermal coal production. A majority of that tonnage has been directed recently into the API2 [DES ARA] market based on favourable dark spreads in the past 24 months,” director of media relations, Steve Hawkins, added.
Of the 11 mines that could be idled, three produce coal that can be exported. Their joint annual production totals 2.8m tonnes – around 2% of the 144m tonnes of steam coal imported to the EU in 2013.
ICIS data show that the international price of coal shipped to Europe has been hovering a couple of dollars above its four year low. A DES ARA July’14 cargo hit a low of $69/tonne at the beginning of July 2014 but the spot market has since recovered with an August cargo trading at $75.00/tonne on Monday.
“It should be clear to utilities that if they’re looking for thermal coal next year from Central Appalachia, at least from our surface mines, it may not be available,” Hawkins pointed out. “We simply cannot efficiently operate assets in a low priced environment where we are making production decisions based on a thirty day or less view of the market,” he added. The company will continue to produce thermal coal in West Virginia from underground operations. Stacy Irish