Canada's coal industry hoping for rebound despite drop in demand

Piles of coal are shown at NRG Energy's W.A. Parish Electric Generating Station Wednesday, March 16, 2011, in Thompsons, Texas. (AP Photo)

CALGARY - Coal industry watchers say that while their sector is hurting, the picture isn't as bleak as two reports this week have painted.

Canada's coal export market, which is made up almost entirely of metallurgical coal used in steel making, has taken a major hit in recent years as prices have dropped from more than US$300 a tonne in 2011 to less than US$90 a tonne this quarter because of continued oversupply and slowing demand from China.

Grande Cache Coal cited the difficult market conditions when it announced plans this month to temporarily shut its coal mine in northwestern Alberta, starting Christmas Eve. The move means more than 220 people will be laid off, which is in addition to the 250 jobs the company cut earlier this year.

Teck Resources Ltd. also resorted to shutting its six coal mines earlier this year for three weeks to reduce oversupply.

Joe Aldina, a coal analyst at Wood Mackenzie, said that while there is no quick fix for the oversupply in the industry caused by China's economic slowdown, India should start to pick up where China left off by the early 2020s.

"Met coal is a very cyclical business and demand for met coal will rebound," said Aldina. "It's going to turn a corner, but it does take some time."

His outlook is more optimistic than the International Energy Agency report released this week that said metallurgical coal demand will see a 17 drop in demand by 2040 if new environmental and efficiency policies are put in place.

The IEA's world energy outlook found that overall coal demand will grow at 0.4 per cent per year through 2040 because of increased demand for thermal coal used in power plants, but it will be a "marked slowdown" compared with the 4.1 per cent growth in the past decade.

That report followed one by Greenpeace on Monday that said 2015 is on course to have the largest fall in coal consumption in history.

Greenpeace found that global coal demand this year has dropped between 2.3 and 4.6 per cent compared with last year, with 90 million to 180 million fewer tonnes of coal consumed.

Ann Marie Hann, president of the Coal Association of Canada, said that while Canada's coal export market is struggling, domestic thermal coal production has fared better because of long-term supply contracts with power plant companies.

"Right now things aren't looking great for our industry, but over the mid- to long-term we continue to be optimistic," Hann said.

But with Alberta's NDP government promising to accelerate the phase-out of coal-fired power plants, Hann said those mines could also take a hit in the future.

"We can only assume that if there's a faster phase-out then obviously the production of coal for power generation domestically will certainly be impacted," said Hann.