By Alexandra Sukhomlkinova

Another record year for the coal mining industry in Wyoming translated into 450 million tons produced during 2008 in the southern Powder River Basin.

The U.S. Department of Energy reported a 3.1 percent increase in total coal production in Wyoming last year. The state has set a record in production once again, but coal producers might have to tame their appetite for record productions as they face the dictates of a recession, analysts say.

Campbell County area coal mines produced about 3 percent more coal last year than in 2007 when production hit 440.4 million tons, according to the DOE and News-Record estimates. Those record-breaking numbers have been a trend for the past decade. More concrete numbers will be available later this month.

Big Profits

Coal producers all profited last year on the worldwide hunger for energy that spilled over from 2007. Flooding in Midwestern states during the second quarter of 2008 slightly decreased shipments from the Powder River Basin, but both the railroad and coal industries were quick to recover in the third quarter. The Mine Safety and Health Administration reported basin production at 308.3 million in the first three quarters. Without those disruptions, annual production number could have rolled in even higher.

“That 3.1 (percent) increase in output includes the second quarter hit by floodings. You might argue that it could have been even a stronger year without these events,” said Paul Forward, a Stifel, Nicolaus & Co. Inc. coal analyst.

When the global financial crisis started to unfold in September, prices on metals, including steel, dropped. A drop in coal prices followed. Powder River Basin coal didn’t suffer as much as coal from the Appalachian Basin, which dropped by about $40 per short ton after the financial meltdown. Powder River Basin prices fluctuated only slightly from $15 per short ton to $12 per short ton, and have settled at $13.

But area producers had to deal with the decrease in demand from East Coast customers. When exports of high-priced coal from the eastern markets to China increased, many power plants turned to Powder River Basin coal because of its lower cost. Coal exports are expected to be down this year because of slow global metallurgical activity. With that chain reaction, there will be less need for Campbell County area coal as a substitute for higher-priced coal.

“Power demand doesn’t fall in the recession as much as steel does,” Forward said. “And the risk for Powder River Basin in the downturn is indirect risk from steel mill demand going down.”

Coal analysts predict uncertainty in coal prices this year. With that prediction they also advise coal producers, especially those operating in the Powder River Basin, to cut their output.

READ THE COMPLETE STORY HERE. (source: Gillette News Record)