(The following story by Robert McCabe appeared on The Virginian-Pilot website on October 18, 2009.)
NORFOLK, Va. — Three oceangoing freighters, laden with tens of thousands of tons of coal, have already left. Six more are scheduled to go between now and the end of December.
They’re headed for an unusual destination: China, the biggest producer of coal in the world.
Against the backdrop of a busy port where 15 to 20 ships of all sizes may come and go on any given day, it may not seem like a big deal.
But the nine colliers, departing from Pier 6 at Norfolk Southern Corp.’s Lamberts Point Coal Terminal in Norfolk, may be on the leading edge of a projected turnaround in American exports of metallurgical coal, or “met coal,” a raw ingredient for making steel.
Home to three major coal terminals, Hampton Roads exports more coal than any other port in the nation.
“Hampton Roads is the Big Daddy,” said Jim Thompson, managing editor of Coal & Energy, a Knoxville, Tenn.-based coal market newsletter.
This year, however, has been rough, as the global recession sapped coal demand and prices.
From January through September, coal exports at Norfolk Southern’s facility and two other terminals in Newport News were off 28 percent from the same nine months in 2008, dropping to 23.8 million tons from 33 million tons a year earlier, according to T. Parker Host Inc., a Norfolk-based ship agency.
“You could almost draw a straight line from the recession to the export levels,” Thompson said. “Coal prices are lower; it’s been a lack of demand.”
A resurgence in coal exports would shore up hundreds of jobs statewide, in businesses ranging from railroads to port terminals, mines to shipping firms, coal-testing labs to harbor pilots and tugboat captains, said David Host, president and CEO of T. Parker Host.
If you’re looking for a sign of a recovering global economy, one could do worse than to track rising met coal volumes – a sign that steelmakers are getting busy again, Thompson said.
And that’s just what analysts at Goldman Sachs pointed to in an Oct. 6 report.
“If there is one bright spot that we could highlight for U.S. coal producers, it is that met coal demand has recovered from its trough as steel production has rebounded from its lows,” the Goldman Sachs report said. “Most notably versus prior expectations, we see rising demand for met coal from China, Japan and Korea. With Australia likely to face rail/port/mine constraints, we see increased need for remaining U.S. spare capacity in 2010.”
Goldman Sachs projects that U.S. seaborne exports of met coal in 2010 will increase by 68 percent – to an estimated 42 million metric tons, up from about 25 million metric tons this year.
Driven by a booming economy, poor access to some of its own coal reserves and problems getting the coal it needed from monsoon-wracked Australia, China became a net importer last year, said Vlad Dorjets, an economist with the Energy Information Administration in Washington.
More than 90 percent of the coal processed at Hampton Roads’ biggest coal-export terminal – Norfolk Southern’s Lamberts Point facility – is met coal, some of it now headed for China.
When the world market for met coal collapsed late last year, China responded quickly with a government stimulus program featuring “a lot of infrastructure projects that required steel,” said Mark Bower, Norfolk Southern’s assistant vice president for export, metallurgical and industrial coal marketing.
The collapse of the market dovetailed with the aftermath of monsoon conditions in Australia, a major met coal exporter, which hampered its port operations and the ability to meet rising Chinese demand.
“We began handling some cargoes to China in September,” Bower said, adding that “it came as a surprise to everyone.”
On a recent weekday visit to the railroad’s Pier 6 operation, thousands of rail cars packed with coal from central Appalachian mines – almost all of it met coal – stood waiting to be unloaded.
“When the coal moves in here, it’s already been sold,” said Robin Chapman, a company spokesman, who has worked at Norfolk Southern for about 25 years. “I’ve never seen it so busy.”
The facility includes a pair of rotary dumpers that flip 100-ton cars like toys, emptying their coal onto conveyor belts that eventually carry it to two towering ship handlers, which feed it into the holds of freighters.
The rotary dumpers, which have a capacity of 40 cars an hour, have been handling 30 cars an hour for weeks, Chapman said.
The railroad recently benefited from a Consol Energy Inc. deal with Chinese steel producers, in which the Pennsylvania-based company sold 88,000 tons of met coal from its Buchanan mine in western Virginia.
The railroad hauled the coal to Lamberts Point, from which it is being shipped to China.
While the Chinese shipments are “sort of a one-off deal,” according to Tom Hoffman, a Consol spokesman, Norfolk Southern officials say that more vessels also are leaving for traditional destinations such as Europe and Brazil.
“We are running flat out, which is quite an improvement from where we were in April,” Bower said. “Whether or not this is here to stay is difficult to figure out; I think we’re going to be running hard through the end of March, which is the end of the coal year.”
From January through September, Norfolk Southern had handled about 9.5 million tons of coal at Lamberts Point, according to T. Parker Host. In the same period last year, it handled nearly 15 million tons, reflecting a year-to-year decline of about 36 percent.
Pier 6 can ship 48 million tons a year, according to Norfolk Southern.
“We’re far short of the hey day, but things are certainly hopping,” Bower said.
Across the James River, as much as half of the business at the two Newport News coal operations consists of shipments of “steam coal” used in coal-fired power plants for the generation of electricity.
Neither is shipping any coal to China.
Kinder Morgan’s Pier IX, which has an annual capacity of 12 million tons of coal, expects to handle about 8.3 million tons this year, including about 3.5 million tons of met coal, said Joe DeMatteo, terminal manager.
While its coal volume is projected to be about 25 percent less than last year, things are looking better for 2010.
“We’ve got contracts in place to do 9 million-plus tons, probably 40 percent of it met coal,” DeMatteo said.
Dominion Terminal Associates has a capacity of 22 million tons a year.
Through September, it had handled about 8.1 million tons, a nearly 24 percent drop from 10.7 million tons in the same period a year ago, according to T. Parker Host.
“We’re happy for what we’ve got,” said Rick Cole, the terminal’s president. “We’re not feeling so well, but we’re not sick either.”
Thompson said it was important to take a long view, suggesting that by the standards of the last decade or so, 2009 would still stand as a pretty good year, particularly given the challenging economic conditions.
“It’s an indication that the export market for Hampton Roads is pretty durable,” he said.