ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Sunday, January 5, 1997 TAG: 9701070012
SECTION: BUSINESS PAGE: 5 EDITION: METRO
TYPE: ECONOMIC FORECAST
SOURCE: GREG EDWARDS STAFF WRITER
"We're glad to be staying in Roanoke," James Van Lanen, president of ANR Coal Co. and chairman of Coastal Coal Sales, said last month.
In early 1996, it appeared Van Lanen and the two companies he leads might have been leaving Roanoke. The Houston-based Coastal Corp. said in February that it was selling all of its coal businesses, including its Roanoke subsidiaries, to raise money to pay off corporate debt.
In late October, however, Coastal said it would sell only its coal properties in the western United States, keeping those in the East. The $615 million the company was receiving for its Western properties would be enough to meet its financial goals, Coastal said.
Coastal is not only continuing to run its operations in Virginia, West Virginia and Kentucky but also is opening new mines, Van Lanen said. "In Virginia, we're expecting a pretty good to excellent year in 1997," he said.
Van Lanen attributed the optimistic outlook to Coastal's investment in mines producing steel-making coal, which is in high demand. The company also has fewer competitors for coal sales to utilities served by the Norfolk Southern Railway because some competing producers along NS track, such as Westmoreland Coal Co. in Wise County, have closed their mines.
Coastal opened four new mines during 1996 that have recoverable reserves totaling 40 million tons. The company, which has traditionally mined its coal through subcontractors, will open its first company mine this year, Van Lanen said.
In late December, the U.S. Energy Department reported coal production was growing nationally at a rate of 3.3 percent in 1996. That estimate, based on train-car loadings, was well over a percentage point ahead of the department's projected production for the year. The department's latest projection for production growth in 1997 is 1.5 percent but that may be revised based on last year's experience.
U.S. coal production topped 1 billion tons during 1996 for only the fourth time in history. The government projects production will exceed that mark again this year, reaching 1.065 billion tons by year's end.
The majority of electric power in the United States is produced by burning coal, and utilities will continue to drive coal consumption. But total demand for coal is expected to remain flat this year, the Energy Department said.
Coal exports, which turned up sharply during 1995, increased only slightly last year and this year's gains are expected to be small, the government said.
Still, Bill Fox, vice president for coal for Norfolk Southern, said the railroad sees new business opportunities as European countries phase out subsidized coal production. New clean-air standards in Europe also will provide opportunities for U.S. producers to sell less-polluting coal there, he said; and NS expects coal exports to be up about 1 million tons this year.
NS transports 130 million tons of coal a year, representing roughly 30 percent of the railroad's revenues. The company expects overall coal deliveries to climb in the 3 percent to 4 percent range this year, Fox said, which would equate to about a 4-million-ton increase. That's pretty good in what seems to be a mature market, he said.
Although much of the coal mined in Virginia is a low-sulfur type that is highly desirable to utilities seeking to comply with federal clean-air standards, the state's producers are sometimes at a competitive disadvantage with those in other Appalachian states. That's because many of Virginia's best coal seams have already been mined and what's left are the thinner seams that are more costly to mine.
In response to the competitive problems facing the state's coal industry, the 1996 General Assembly approved a tax credit that will mean $37 million a year for Virginia producers beginning in 1999. Lawmakers expect the 10-year credit to save 2,000-5,000 Virginia coal mining jobs.
Even without government incentives, Virginia's coal industry may be turning around, at least in the near term. Production, which had been on a downward track for the previous four years and stood at 34.5 million tons in 1995, showed an increase of about 1 million tons last year, according to government estimates.
Pittston Coal Co., based in Russell County, which had closed mines the year before, announced last fall that it was reopening a coal-cleaning plant in Dickenson County and opening three new mines to produce 1 million tons annually of high-quality metallurgical coal used in steel making.
Carl Zipper of the Virginia Center for Coal and Energy Research at Virginia Tech, noted that coal producers benefited from an increase in the price of coal last year. One source on prices, he said, showed the premium, low-sulfur coal mined in Southwest Virginia rising from $24 per ton in the fall of 1995 to $27.50 a ton this past fall. But the price is still short of the $29 per ton the same coal brought in 1990, he noted.
The higher prices may be attributed to a reduction of production capacity, such as the closing of some mines, by coal companies, Zipper said. The downside of mine closings, he said, is companies aren't as well equipped to respond to price increases.
Still the higher prices are good for Virginia producers because the state's coal costs more to mine than that in other states, Zipper said.
LENGTH: Medium: 94 lines ILLUSTRATION: GRAPHIC: Chart by staff: U.S. Coal production trends. color. KEYWORDS: MGRby CNB