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U.S. Coal Industry Not Well-Positioned to Benefit From Increased Short-Term Global Demand

Earlier this month, the International Energy Agency released its medium-term outlook on coal...and concluded that countries like India and China will be burning more coal over the next five years. So much, in fact, that coal could even surpass oil as the world's top energy source by 2017. But that rise in coal production doesn't mean that any of it will come from Central Appalachia. Reuters columnist Christopher Swann makes his case for why 2013 won't be a good year for this region's coal mines: Worse, most U.S. mines are poorly placed to exploit demand outside its borders. Most, especially in the Appalachian states, are old and have already tapped the cheapest seams. Add in pricey rail transport to East Coast ports and exports only make money when coal is over $100 per tonne, according to Brean Murray Carret & Co. That puts them at least $5 out the money at current international prices. Costs for producers in Wyoming and Montana are lower, but these have poor access to ports. Instead the spoils from rising global demand will go to those operating in Indonesia and Australia, the top two exporters. Flooding and weak global prices hurt Australian miners in 2012, knocking a third off the market value of top producer Whitehaven Coal. But the future looks brighter. Costs there and in Indonesia are lower. And China, the main growth market, is relatively close.

As Australia gets its coal mining sector back on track, that's not good news for Kentucky producers who were counting on exportsto help keep the industry afloat as U.S. demand drops.

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