By Melissa Pistilli-Exclusive to Coal Investing News

Along with most in the commodity sector, the coal industry will likely take a hit in 2009, but many analysts are confident that coal demand along with prices will rebound in 2010.

“It is not going to be a good year in 2009,” said economist Tucker Hart Adams. “Hopefully, by 2010, we will be back in a period of slow growth and we will see economic growth gradually accelerate.”

The global economic downturn has forced many commodities producers to cut production. The world’s third largest thermal coal exporter, Russia, has recently announced it, too, has been forced to curtail production. Although global cutbacks in coal production are a good indication the market is weakening for the time being, these cuts will support coal prices for now and lead to rising prices in the near future once demand picks up. As energy demand from developing countries like China and India recovers, we will once again see “the upward movement in the price of coal, natural gas and oil,” said Adams.

Another indication that the fundamentals of the coal industry remain strong is in the mining supplies industry. Specialty steel and tool manufacturer Sandvik-whose mining and construction division accounted for nearly 40 per cent of its revenue last year-says  that while equipment sales to base metal mines have been weak, sales to coal and gold mines have remained strong.
Heavy machinery manufacturer Caterpillar, Inc. has said it expects “continued growth in sales related to mining and energy overall on a global scale.” The company states that nearly half of its mining sales are to coal mines, “and coal prices are, relative to other commodities, in very good shape and well above levels that support continued investments.”

Global slowdown spells expansion for coal producers

While many miners around the globe are cutting back spending in light of the recent economic downturn and the resulting commodities slump, others are viewing the hard times as a great opportunity to acquire assets abroad. Industry analysts are saying that falling stock prices have made this a great time to buy undervalued coal properties. And some key players in the coal industry, like Arch Coal and Peabody Energy, are doing just that.

“Within every crisis there is enormous opportunity,” said Arch Coal, Chief Executive Officer Steven Leer. “We see there’s going to be tremendous opportunity to acquire assets,” he added. The U.S.’s third largest coal producer, who is currently positioning itself in China, has a strong balance sheet and is well-positioned to make acquisitions, according to Leer.

 Arch’s rival, Peabody Energy Corp, also has its sights set on acquisitions in China. “We are looking at projects in western China with various companies,” said Peabody, Senior Vice President of government relations Fred Palmer. “We are looking at coal development in Mongolia for China and we are in discussion with Chinese companies.”

In October, Peabody entered an agreement to examine the prospect of developing a large surface mine and downstream coal gasification facility in Inner Mongolia. “We are here because we see tremendous opportunity. We believe we can add value to the coal mining development on a sustainable basis in China,” said Palmer.

New coal transport rail line in inner Mongolia

Transportation bottlenecks represent a huge problem for development of China’s coal industry. However, steps are being taken to correct the issue. Over the next four years, 1,300 km of railway will be added in the region and rail lines for coal transportation will make up a significant portion of the project. 

Construction of a 1000-km rail line for transporting coal from Inner Mongolia will begin next year. The new rail line is meant to alleviate the nation’s coal transportation bottlenecks and is expected to move 200 million tonnes of coal annually.