US Coal Production Unlikely to Sate World Demand

US coal production has room to grow, but expansion is unlikely to meet surging world demand because miners fear a boom-bust cycle, key reserves are declining, and regulation has tightened.

Despite soaring prices, the US Energy Information Administration has cut projections of US output rather than raised them, and now foresees a total of 1.166 billion short tons by 2010, barely up from a record 1.163 billion in 2006.
That is not enough to overcome what some coal officials see as a shortage of 25 million to 35 million tons this year in the 6-billion-ton world market and a shortfall of perhaps 70 million tons next year.

Closing the gap with US coal would require spending billions of dollars to expand mines, rails and ports, investment difficult to recover if — as has happened before — supply growth exceeds demand and prices fall.

Europe has bid spot eastern US power-plant coal past US$110 a short ton, up from US$45 a year ago, because booming Asia has bought up other supplies Europe had relied upon. But there has not been much of a US supply response.

“No one is really ramping up production dramatically,” said Daniel Scott, director of equity research for the investment bank Dahlman Rose & Co.

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