CAC examines future coal trends — New markets, cost-cutting seen as next challenges for industry

Achieving cost competitiveness will be the key to success for western coal producers currently struggling to survive declining prices and weak demand brought about by the global economic crisis.

That was the consensus among members of the Coal Association of Canada, who converged here recently to attend their annual general meeting. Several producers are responding to the challenge by seeking to expand sales into non-traditional markets, whereas others are focusing on cutting costs and improving productivity.

About 100 delegates attended the symposium to hear speakers present their views on the future of coal.

Stephen West, Alberta’s energy minister, raised concerns about energy de-regulation and environmental issues relating to climate change. “We’ve got to stand up and give more credence to the future of coal,” he said. “It’s not expendable at the price of climate change. It’s here for the long run.”

CAC President Alan Johnson assured delegates that coal’s “advantage” is in long-term, low-cost supply. However, he conceded that producers have their share of challenges, including the Kyoto Accord, which was drafted by world leaders in an attempt to reduce global warming worldwide. If the agreement is ratified, industrialized nations would be required to reduce their greenhouse gas emissions by between 6% and 8% between 2008 and 2012.

“Given time and money,” the coal industry should be able to develop technology to dispose of greenhouse gases safely, said Johnson. He added that the industry has two choices: “to respond to the future as it happens, or to engage and shape it.”

Edward Komperdo, vice-president of mining operations for Luscar, Canada’s largest coal producer, discussed his company’s acquisition of Manalta Coal. Estimates indicate that the merger will enable Luscar to save $90 million during the next five years.

Komperdo said that for Canadian producers, success lies in cost-competitiveness and expanding markets and overcoming distance to markets. “In terms of international thermal coal markets, our expectation is that in the long-term, the demand for electricity — particularly in Asia and Europe — will increase.

“By contrast, we see very little growth in metallurgical coal markets,” he added. “And given improvements in steel production techniques due to the application of new technology, there has perhaps been even a slight decrease in this market. We expect that demand for metallurgical coal in the Pacific Rim will remain flat, while demand in Europe, Latin America and India will enjoy some growth.”

Meanwhile, British Columbian producers are facing weaker prices as long-term contracts with Japanese buyers expire. For mining suppliers in that province, business is “virtually non-existent,” according to Vince Coyne, chairman of that province’s Mining Suppliers, Contractors & Consultants Association.