Executive Briefings

Construction Boom Could Boost Demand for Met Coal

Businesses that transport their goods via the highways, railways or the airways are likely to see an expansion of the nation's infrastructure. That's good news not just for companies that want to move their products in the most efficient manner possible. It may also be good news for a subset of the coal sector that produces so-called metallurgical coal for steelmaking.

In other words, the more the infrastructure gets propped up or expanded, the more steel will be required. And since met coal is used to make steel, those coal producers may see a bump in their businesses. Already, the benchmark price of met coal has risen from a low of $70 in 2016 to about $270 a ton. The reason for the rise in price is not so much because of greater demand. But it is because China curbed the supply for several months, which put upward pressure on prices.

“This is the best news that Appalachia as a whole has had in about 10 years,” said Jason Bostic, a vice president at the West Virginia Coal Association, referring to Trump’s infrastructure agenda, in a Reuters story. “Suddenly there’s a little bit of hope here.”

Politically speaking, the Democrats favor increased spending on infrastructure, calling it not just a job created but also an essential step to maintaining American competitiveness. Republicans, by contrast have said such projects increased the national deficit and are generally opposed.

At issue as well is from where the steel would be made and purchased. If it imported from China that has produced it from Australian coal, then it would not bode well for American mining companies. That said, some domestic companies are upbeat for the time in years.

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In other words, the more the infrastructure gets propped up or expanded, the more steel will be required. And since met coal is used to make steel, those coal producers may see a bump in their businesses. Already, the benchmark price of met coal has risen from a low of $70 in 2016 to about $270 a ton. The reason for the rise in price is not so much because of greater demand. But it is because China curbed the supply for several months, which put upward pressure on prices.

“This is the best news that Appalachia as a whole has had in about 10 years,” said Jason Bostic, a vice president at the West Virginia Coal Association, referring to Trump’s infrastructure agenda, in a Reuters story. “Suddenly there’s a little bit of hope here.”

Politically speaking, the Democrats favor increased spending on infrastructure, calling it not just a job created but also an essential step to maintaining American competitiveness. Republicans, by contrast have said such projects increased the national deficit and are generally opposed.

At issue as well is from where the steel would be made and purchased. If it imported from China that has produced it from Australian coal, then it would not bode well for American mining companies. That said, some domestic companies are upbeat for the time in years.

Read Full Article