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Interview: George Dethlefsen, CEO of Corsa Coal

George Dethlefsen talks to Coaltrans about the potential impact of Donald Trump on the US coal industry, how the widening of the Panama Canal could benefit Corsa Coal, and improvements in the US coal export market





Coaltrans Conferences (CC): What signs are you seeing that the US coal export market is improving this year?

George Dethlefsen (GD): With metallurgical coal prices up approximately 40% since the lows in the first quarter of 2016, we have seen a significant increase in orders both internationally and domestically.  Many US producers reduced their export shipments in the last 2 years as pricing was uneconomic.  We believe exports from the US will increase in the months ahead now that prices are at profitable levels.  Buyers have had difficulty sourcing certain coal qualities, which has led to improved pricing for producers with available tonnage.  Domestic (US) producers’ ability to increase production is challenged, suggesting that it will be difficult for an oversupply situation to arise in the near term.



CC:
Can you tell yet whether this could be a short or long term trend?


GD: Our assessment of the cost curve for seaborne metallurgical coal suppliers suggests that prices above current levels are required for future coal demand to be fulfilled and to incentivize new mine development.  Historically the US coal market has been a swing supplier of metallurgical coal on the seaborne market.  We think that trend will continue, with only the low cost producers maintaining market share during cyclical downturns.  In the past 5 years, we have experienced the longest and deepest downturn for metallurgical coal pricing in over 60 years.  It is our view that this has led to underinvestment in capital expenditures and a lack of reserve replacement by mining companies.  Bringing on new production requires mining permits, labor, mining equipment, and capital investment.  Many producers are not positioned today to capitalize on higher prices.  This, in turn, will delay the supply response to higher prices, which should lead to a longer and more severe uptrend in metallurgical coal prices. 



CC: Can you be more specific about the impact that Donald Trump might have on the US coal industry if he is elected President of the United States in November?

GD: I could see several impacts:

1. The potential for demand stimulus from an infrastructure spending bill.  This could impact steel demand as well as industrial demand for utilities.  I believe infrastructure spending has bipartisan support.

2. Decreased regulatory pressures and enforcement actions from the Mine Safety & Health Administration and the Environmental Protection Agency would help lower operating costs for producers.

3. A new tone at the top of the government that encourages energy production from all sources, including coal.  This has an impact on public perception, media coverage, and investor and lender behavior, which in turn, influences the granting of permits, community relations, investor relations, hiring, and many other aspects of coal mining.  

4. The appointment of conservative judges would limit future impacts to the industry from various judicial rulings on the Clean Water Act, the Clean Air Act, the Clean Power Plan, and other legislation. 

5. The potential for domestic cap-and-trade or carbon tax legislation would be nullified (it is already highly unlikely).  US opposition to World Bank financing for international coal fired power plants would likely be eliminated, and US support for international climate change policies would likely be eliminated.




CC: Will Corsa Coal be able to benefit from the widening of the Panama Canal? Do you feel that US coal producers are planning to make the most of this opportunity or not?

GD: We see little near term benefit to US producers from the widening of the Panama Canal.  The freight-advantaged US export markets are to Europe and South America, and these routes do not require the use of the Panama Canal.  We would expect Australian and Indonesian coal producers to protect their market share in the Pacific Basin against US East Coast exports.  Near term, with dry bulk rates at historically low levels, reduced shipping times to Asia do not make material impacts on delivery costs, especially when Panama Canal fees are layered in.  Finally, most shipments from the US East Coast are made using vessels that would fit into the pre-expansion width of the Panama Canal.  Investment would need to be undertaken to increase the draft of US East Coast ports to accommodate larger vessels.  It is unlikely that this investment will be made in the near term.   



CC:
As a US coal producer, what do you feel will be the most topical areas of discussion at the World Coal Leaders Network in Lisbon for you?


GD:

1. Coal import trends from European steel producers
2. Steel demand trends in Europe and globally
3. Regulatory trends impacting European coal buyers



You can hear more from George at The World Coal Leaders Network in Lisbon on 16 - 18 October.

 

This content is provided by Coaltrans Conferences for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.

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