By Kishori Krishnan Exclusive To Coal Investing News

The U.S. Interior Department said on Monday it will try to overturn a Bush administration rule that made it easier for coal mining companies to dump mountaintop debris into valley streams. Calling the rule a “major misstep,” Interior Secretary Ken Salazar said he will ask the Justice Department to go to the courts to withdraw the Bush regulation and send it back to Interior to stop the policy.

It may be recalled that the Bush-era rule allowed coal mine operators to use “the cheapest and most convenient disposal option” for mountaintop fill. “We must responsibly develop our coal supplies to help us achieve energy independence, but we cannot do so without appropriately assessing the impact such development might have on local communities and natural habitat and the species it supports,” Salazar said.

More than half U.S. electricity is generated from coal. U.S. surface coal mining is mostly done in the steep mountains of Appalachia, across Virginia, West Virginia, Tennessee and Kentucky and accounts for about 10 per cent of U.S. coal production.

Major energy companies, such as Arch Coal Inc (NYSE: ACI) and Consol Energy (NYSE:CNX), participate in mountaintop mining, which involves scraping the surface of mountains and pushing the crumbled mountaintop debris into adjoining valleys. Under the Bush rule, coal mine operators could dispose of excess mountaintop debris in and within 100 feet of nearby streams streams whenever alternative options are deemed “not reasonably possible.” The Obama administration has sought to reverse this rule.

The action is the latest blow to the coal industry, which defends mountaintop mining as a safer, cheaper alternative to traditional underground mining. Coal companies had supported the Bush rule, which permits companies that blow off mountaintops to get at the coal underneath to avoid maintaining a 100-foot buffer zone between nearby waters if it isn’t reasonably possible to do so.

Meanwhile, European API2 coal swaps settled little changed on Monday in relatively thin trading. Coal swaps fell around $2.50 by midday in line with weaker oil prices but later recovered most of the earlier losses. European utility selling dominated the physical market. Utilities were active sellers of surplus July delivery coal at prices between $58.00 and $61.00 a tonne.

China coal

Sources from China’s Logistics Center indicated that China coal supply demand relations had basically maintained a loose state in the Q1 of 2009 and coal market price had edged down. Experts estimate that coal price may continue to decline, and that the downtrend won’t stop till the high season of this winter. In Q1 of the year, China’s net imports of coal remained at 6.21 million tonnes. The newly emerged resources stayed at 620 million tonnes up by 6.6 per cent year-on-year.

According to the prediction of experts, production of China coal mines may increase slightly in this year, reaching 2.85 billion tonnes. Under the impetus brought about by the stimulus package, coal demand is expected to go up gradually. China’s total coal consumption is predicted to be 2.8 million tonnes of the year and coal supply will be at ease. They also predict that China’s coal exports will continue to fall, and that the total export volume of coal will remain at some 35 million tonnes.

Europe coal

Prices for coal shipped from South Africa’s Richards Bay, site of the world’s largest export terminal for the fuel, fell for a second consecutive week on weaker demand and sufficient stockpiles in Europe. Export prices at the port, Europe’s biggest single source for coal burned for power, dropped $1.30, or 2.1 per cent, to an average of $61.50 a metric ton in the week ended April 24, according to McCloskey Group Ltd. Prices have fallen 45 per cent over the past 12 months as demand for power slumped after manufacturers cut output to grapple with the global recession.

“There’s lots of stocks in Europe and not many buyers around,” John Howland, an analyst at Petersfield, England-based McCloskey Group Ltd., said. The “coal of choice” at the moment in Europe is Colombian, he said. That may ease demand for South African imports.

Colombian coal supplies may increase after a strike ended this month at Fenoco, a rail company 40 per cent-owned by Xstrata Plc (LON:XTA). That, plus the end of weather disruption in Australia, will help push prices down to an average $55 a ton in the second and third quarters, Jim Lennon, a Macquarie Group Ltd. analyst in London, wrote in a report. “The market is generally well-supplied,” he said.

The port of Rotterdam, Europe’s biggest, imported 7.7 million tons of coal in the first quarter of this year, up 24 per cent from the same period of 2008, the port said, indicating a buildup of stocks.

India coal

Sajjan Jindal-led JSW Energy is close to acquiring a sub-Saharan African thermal coal mine, which has reserves of more than 200 million  tonnes, to minimise dependence on other overseas companies, an official said. Although he did not reveal the deal size, an expert tracking the sector said it could be anywhere between $70-100 million depending on the quality of coal and how far the mine is from the port. Thermal coal is a key input in power generation.

The acquisition, if successful, would be funded through a mix of internal accruals and debt, the person added. Coal from the mine would be shipped to India for captive use in the company’s three upcoming power plants. According to a Delhi-based independent steel analyst, the procedure to access a coal mine in India is arduous and raises environmental issues. So, domestic power firms are constantly looking for mineral resources overseas.

UK coal

UK Coal Plc (UKC.L), Britain’s biggest producer of coal, said it swung to an annual pretax loss on Monday following a smaller gain in its property portfolio, but its shares surged to almost 15.5 per cent on new and revised supply contracts. UK Coal said it signed new or amended long-term supply contracts with Drax (DRAX.L), EON (EONG.DE), EDF Energy (EDF.PA) and added Scottish and Southern Energy (SSE.L) as a new customer.

The group expects the cash flow benefits from these contracts in 2009 to be about Pounds 85 million  (US$124 million), with around a further Pounds 15 million on top of this in 2010.

“It will make a huge difference to the company,” Chief Executive Jon Lloyd told Reuters.