CHARLESTON, W.Va. — Close listeners to this week’s West Virginia gubernatorial debate might have heard a rare glimmer of hope about the coal industry as described by Democratic candidate Jim Justice.
In discussing how he would solve West Virginia’s mounting budget problems, Justice described help coming from the outside: a rallying market for coal.
“We’re seeing the rebirth of coal right now, right in front of us,” Justice said. “There will be a lot of people getting their dinner bucket and getting to work.”
The good news is: Justice was right.
The expanded picture is: Justice was right about a particular segment of the coal market, and it’s not yet clear how long the improvement will last or what effect it might actually have on West Virginia’s economy.
Justice didn’t specify what kind of coal he was talking about, but metallurgical coal — the kind used in steel production — has been on a rocket ride over the past several months.
The market is largely dependent on international factors — demand in countries like China and India and competing supplies from Australia.
Right now, those factors have been good for metallurgical coal demand. Analysts cite lowered coal production in China itself, increased demand from Indian mills and bad weather and operating issues that have dampened supplies from Australia.
#Ironore prices relatively stable, while #cokingcoal continues to go vertical – MB Index records 41% rise in August pic.twitter.com/WzUssYMrbk
— MB Iron Ore Index (@IronOreIndex) August 31, 2016
It’s been a steep rise from mid-summer to now. The trouble is how flat metallurgical coal prices had been before that — and the uncertainty of where they might go in the future. (Sample headline from Australia: “Coking coal’s on a high, but how long will it last?”)
“We live in a capitalistic society where what is the value of a home, what is the value of anything?” said Ken Silverstein, an energy writer whose work is published places like Forbes and Energy Manager Today.
“It’s what someone is willing to pay for it. The value of met coal is what it is. It’s what someone was willing to pay for it today.”
The other issue is, these trends are largely out of control of the governor.
“The Chinese economy would have to rebound; the coal would have to be imported from the United States instead of Australia. Unless he was specific, what are the fundamentals?” asked Silverstein, who is a Charleston resident.
“You’re not just going to wave a magic wand and hope that solves the state’s budget problems.”
Justice cited rising coal prices a few times during Tuesday’s debate: “This will absolutely bring real money in,” he said.
To get a grip on the state budget picture, Justice said, West Virginia needs to reassess the potential for increased severance tax collections.
“Coal market prices have tripled. The Australian benchmark price just came back at $200 a ton. You’ll see a flush of money come back from that. The alternative is cut, cut, cut or tax, tax, tax. I don’t believe in either one of those.”
His opponent, Republican Bill Cole, shot back: “I still didn’t hear a plan.”
Justice later linked increased tax revenue from a rebounding coal market to the possibility of pay raises for teachers.
“There’s going to be an infusion of very, very significant money into revenue coming almost immediately,” Justice said. “It’s coming in today. There’s absolutely monies coming in today because there’s a significant increase in coal prices going on right in front of us.”
Cole responded that the context of the coal rally matters.
“You’re right, coal severance has come up to a little bit — only up to where it met expectation level. I don’t see how that pays for anything. It leaves us $350 million in the hole.”
WVU’s annual Coal Outlook predicts continued weakness for metallurgical coal well into 2017, although it envisions stabilization for metallurgical exports in the longer term.
“We did predict a stabilizing in coal production,” said John Deskins, director of the Bureau of Business & Economic Research at West Virginia University.
“So in some sense we’re on the same page that we see a bottoming out and some improvement. The question is about magnitude, and in our outlook we forecast a modest improvement. My inclination is to believe that the improvement we’re going to see is going to be not nearly enough to fill our budget gap.”
During an appearance this week on Talkline with Hoppy Kercheval, United Mine Workers President Cecil Roberts noted rising prices for metallurgical coal.
“The one good piece of news is we have a lot of metallurgical coal in Appalachia. Price of metallurgical coal has been creeping up and creeping up. That will put people back to work.”
Roberts noted, as an example, last month’s announcement that Ramaco Development plans a $90 million investment to open two mines in southern West Virginia, employing up to 400 miners. That development was linked to the rise in price of metallurgical coal.
“That’s probably our best shot at getting coal miners in the southern part of the state back to work,” Roberts said.