EXPLORATION & DISCOVERY: COAL

The Canadian coal industry had a difficult year in 1992. Strikes, lockouts, and a tragic accident led to a drop in production, exports and earnings. These events were unusual for the Canadian industry, which has had a long and enviable record as a reliable supplier of coal.

Internationally, coal supply continued to exceed demand in spite of problems in such major exporters as Canada (which ranked fourth in 1991), Poland and the Commonwealth of Independent States (CIS). Forecasts of world coal demand and trade continue to show growth well into the next century. The International Energy Agency forecasts that seaborne hard coal trade could grow from 368 million tonnes in 1991 to 427 million tonnes in 1995 and to 565 million tonnes by 2000. Most of this increased demand will be for thermal coal in the Asia-Pacific region.

Preliminary statistics indicate that Canadian coal production fell to 64.6 million tonnes in 1992, down 9% from the 1991 record level of 71.1 million tonnes. Virtually all of this decline was accounted for by the lengthy strike at Fording Coal’s Fording River mine, a lockout at Westar’s Balmer mine, and the temporary shutdown of Westar’s Greenhills mine. These three mines usually account for more than 20% of Canadian coal production, most of which is metallurgical coal destined for export markets. Since metallurgical coal has a higher value than thermal coal, the decline in metallurgical production led to a 13% decline in the value of coal production in 1992, compared with the 9% fall in the volume of output.

The closure of three mines in Nova Scotia also contributed to Canada’s lower coal output. Curragh’s Westray mine in Pictou County terminated production in May, 1992, after an underground explosion. The Evans Coal mine and the Cape Breton Development Corp’s Lingan mine closed later in the year.

Problems at the six mines mentioned above decreased employment in the coal industry in 1992. Preliminary statistics indicate that employment fell to approximately 9,000, down from 10,400 in 1991. Employment should begin to rebound in early 1993 as the Balmer, Greenhills and Fording mines resume production, but it will take at least until 1995 for these mines to return to 1991 production levels. Canadian production should reach a level of about 68 million tonnes in 1993.

Canadian coal consumption for 1992 is estimated at 51 million tonnes, up approximately 1% from 1991. Expanded utility thermal coal consumption accounted for this increase, reflecting higher consumption in Nova Scotia and in Saskatchewan, where a new power station came on-stream. New coal-fired generators are scheduled to come on-stream in Nova Scotia, New Brunswick and Alberta in 1993.

Coal consumption by the steel industry and general industrial users, mainly in Ontario, remained virtually unchanged in 1992 at 5.0 million tonnes and 1.5 million tonnes respectively. The majority of this coal is imported from mines in the United States because of their proximity to central Canadian coal users.

Canadian coal imports for the year are estimated at 13.6 million tonnes, up 10% over 1991. Increased purchases of nearly 1.0 million tonnes of thermal coal for the Ontario utility market were primarily responsible for this increase.

The difficult year reflected continuing restructuring within the industry. Early in 1992, Teck completed its takeover of the Quintette mine from Denison. In mid-year, Imperial Oil sold its Byron Creek Collieries to Corbin Creek Resources. Near the end of the year, Teck purchased the Balmer mine, and Fording Coal acquired the Greenhills mine. These latter two Westar mines had been under the protection of a trustee-in-bankruptcy. The ownership changes are expected to result in financial and organizational changes which should help improve the productivity of these export-oriented mines.

Such improvements will be required as world coal trade is forecast to become more competitive under additional price pressures in the next few years. Political developments in countries such as Poland, the CIS, China and South Africa have resulted in an increased supply of low-cost coal, which will put downward pressure on prices of both thermal and metallurgical coal. This does not bode well for Canadian, Australian and U.S. exporters, who are already surviving on thin profit margins. Lower prices will help to constrict coal supply. By the middle of the decade, prices should be forced up to more acceptable levels. Only then will most market-based producers be able to make acceptable returns on investments and bring on new capacity to meet the major increases forecast for world thermal coal demand and trade.