Despite year-end activity, it's been a tough year for coal
Snow is threatening to fall tonight and, like a field general, Mike Buchart is marshalling his forces. Earlier today he was up in the mountains, watching large, 10-wheel trucks lumber down rutted dirt roads that have turned to mud. Now, he is back at the mill, eyeing a conveyor belt full of chunks of cold, black mineral. By tonight, some 2,700 tons have to be shipped out.
This is coal country. And, like other coal operators in eastern Kentucky, Mr. Buchart is gearing up for more business as the weather grows colder. Unfortunately, all the activity at his Kentucky May Coal Company Inc., disguises a simple fact: It has been a very bad year for coal companies - especially for small and midsize ones. Buchart, one of the fortunate midsize survivors, thinks he has a way to change that.
A nationwide recession and conservation efforts have slackened coal demand. Prices are in the basement. Many coal companies have either cut back on production or pulled out altogether. Next year, demand is estimated to rise a modest 3.7 percent, according to figures released this week by the National Coal Association. But 1982 ''was just so bad,'' says Jerry Karaganis, association vice-president. ''We expect more consolidation.'' That is, fewer coal mines operating in the near future.
Unlike the big companies, small and midsize operators have not had the cushion of long-term (and currently higher-paying) contracts. Many have gone out of business, observers say.
The region has become less competitive, he says. Major oil companies have bought up large independent operators in the past three years. Recent federal and state legislation have made coal mining more difficult and have increased the waiting time for the permits and bonds required for mining. The latter puts a special strain on companies with limited resources. (Ken Hart, publisher of the Kentucky Coal Journal, says there will be some relief in the bonding area next month.) Small operators haven't been able to take advantage of fast-loading and coal-washing facilities at railroad loading points because they are controlled by the large companies, he says.
''Basically, what we're seeing is the big getting bigger and the small perishing,'' Buchart says.
Kentucky May has survived, because it sells relatively small amounts of high-grade coal to industries - a market so small that bigger companies don't fool with it.
Buchart hopes to form a type of cooperative, whereby small and midsized operators would mine coal under contract with Kentucky May. With the pooled production, he hopes to attract two or three long-term contracts at around 500, 000 tons a year each. (Kentucky May itself produces about 350,000 to 500,000 tons a year.)
The cooperative would be competitive with large companies because Buchart would provide a $7.5 million project to construct a coal-washing plant (which rids the coal of impurities) and a fast-loading facility (which would enable the company to quickly load large amounts of coal onto railroad cars). The project is already 40 percent complete. Kentucky May, which produces enough coal itself to justify the new facilities, is waiting for final approval from the L & N Railroad.
Apparently, this would be the first cooperative started by a midsize company. Another, less-formal cooperative in the state has had success in selling coal to Italy, but the reserves of the small companies involved are not contractually committed.
Talk of small-operator cooperatives is not new in eastern Kentucky, and there are many skeptics. What happens if the coal market turns around and a small operator could make more money by selling on the spot market than on contract? Would he stick to his contract?
''It would take a real trust of the various parties,'' adds Tom Duncan, president of the Kentucky Coal Association. ''Coal companies have had to be tough and independent just to survive. Talk about a hostile market! That's a hostile element.''
Still, Buchart is confident. Three independent producing companies already have made commitments, he says, and others have expressed tremendous interest.