Overseas markets have been one of the few bright spots for the U.S. coal industry, especially as demand for coal used by U.S. electric power generators and steelmakers has been on a downward trajectory this decade.
But the international trade wars started by President Donald Trump do not bode well for an industry he has promised on several occasions to revive.
U.S. tariffs on imports and retaliatory measures by other countries are likely to slow down the growth of coal exports, especially for coal producers in the Appalachian region, according to a new West Virginia University report.
Deteriorating trade relations between the United States and its trading partners over the past several months “pose an appreciable risk” to West Virginia’s coal producers going forward, researchers at West Virginia University’s Bureau of Business & Economic Research concluded in their latest annual coal production outlook titled “Coal Production in West Virginia: 2018-2040.”
The Trump administration has instituted a broad import duty of 25 percent on steel and 10 percent on aluminum. Several countries have responded with retaliatory tariffs on U.S.-produced steel along with a host of other goods, including coal.
These retaliatory measures have “the effect of making coal from West Virginia mines more expensive to overseas buyers,” the report says.
Earlier this summer, Trump announced tariffs on $50 billion in products from China. In response, China proposed tariffs on $50 billion in U.S. products, with coal and natural gas high on the list. Coal exports to China totaled 3.2 million tons in 2017, up from zero in 2015 and 2016, according to the U.S. Energy Information Administration (EIA).
“We’re obviously watching it closely, particularly given what a bright spot exports have been for our industry of late,” Ashley Burke, a spokeswoman for the National Mining Association, which represents U.S. mining companies, told Reuters. “Anything that would chip away at the appetite for U.S. coal abroad would be of concern.”
Indeed, coal exports have been a rare bright spot for West Virginia’s coal industry. After West Virginia coal production fell by nearly in half between 2008 and 2016, the state’s coal industry rebounded as output increased nearly 27 percent between mid-2016 and mid-2018. Export demand accounted for nearly all of the growth in coal production over that two-year period due to significant increases in coal shipments to India, Brazil, Ukraine, and a few other countries, according to the report.
Needless to say, Trump’s new trade policies are coming at a bad time for West Virginia’s coal industry. Surging export demand enabled West Virginia’s coal industry to register an output increase of nearly 15 million tons in 2017 compared to the previous year.
But due to declining use of coal for electric generation and uncertainty about coal exports, the West Virginia University report forecasts a 3-percent drop in coal production in the state during the next two years.
“Weakening export activity will likely drive most of the anticipated drop in production through 2020, but the retirement and/or conversion of several gigawatts’ worth of coal-fired generating capacity that sources coal from West Virginia mines will also account for some of this decline,” the report states.
The burgeoning trade wars could intensify if more countries decide to assess retaliatory tariffs of their own on coal and other goods produced in the United States. The administration, for example, has proposed tariffs on imported cars and parts, which along with the other enacted and proposed tariffs would affect more than $870 billion in imports.
The export of metallurgical coal from the U.S. “would likely be hurt as well since the hit to imported autos would dampen steel demand,” the report said. Metallurgical coal is used to produce coke, the primary source of carbon used in steelmaking. Thermal coal is used to generate electricity at power plants or industrial facilities.
According to the report, domestic shipments of thermal coal are expected to wane over the next decade, as aging coal-fired power plants cope with rising maintenance costs, as well as competition from natural gas and renewable energy resources.
In the long term, from 2020 through 2040, the West Virginia University researchers expect statewide coal production to continue to drop, hitting 66 million tons by 2040, a 17 percent decline from 2016.