THE IMPORTANCE OF US COAL EXPORTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600030137-7
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 13
• Document Creation Date: December 22, 2016
• Document Release Date: October 20, 2011
• Sequence Number: 137
• Publication Date: September 1, 1970
• Content Type: IM

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DIRECTORATE OF
INTELLIGENCE
Intelligence Memorandum
The Importance of US Coal Exports
eonf ad ILLEGIB
ER IM 70-136
September 1970
Copy No.
.69
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 79.1, o!' the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
OR UP I
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I CONFIDENTIAL
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
September 1970
INTELLIGENCE MEMORANDUM
The Importance Of US Coal Exports
Introduction
A potentially serious coal shortage in the United
States has caused some domestic consumers, particu-
larly the electric utilities, to urge an embargo of
US exports of coal. The United States mines the
world's best coking coal and is by far the world's
largest exporter of bituminous coal. Japan is the
largest importer of US coal, all of which is of
metallurgical grade for use by Japan's rapidly ex-
panding iron and steel industry.
This memorandum sets forth the importance of US
coal exports to the principal recipients and examines
the short-run impact of any curtailment of US exports,
especially for Japan's steel industry.
International Importance of US Coal
1. The United States is the world's largest
hard coal* producer, followed by the USSR and Commu-
nist China. In 1969 the United States mined about
500 million tons, or about 25% of the world total
(see Table 1). In terms of exports to the Free
World, the United States has no equal. US exports
were more than 51 million metric tons in 1969 -- about
10% of production -- compared with 16 million tons
* Anthracite and bituminous, excluding brown coal
and Zi(rni to .
Note: This memorandum was produced solely by CIA.
It was prepared by the Office of Economic Research
and was coordinated with the Office of Current In-
teZZigence.
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Table 1
World Hard Coal , Production
1969
Country
United States
USSR
Communist China
United Kingdom
Poland
West Germany
India
South Africa
Japan
Australia
France
Czechoslovakia
North Korea
Spain
Other
Total
Million Metric Tons
Production
514
2, 030
a. Anthracite and bituminous coal, exclud-
ing brown coal and lignite.
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sold by second-ranking Australia. The United States
is even more crucial than the quantity comparisons
imply because it is the only large source of the
premium-grade coking coal.* Other countries must
blend with their lower quality coal to ,iaet modern
blast furnace standards. Some 90% of US coal shipments
in 1969 went to Japan, Canada, and the European Common
Market countries (EC), as shown in Table 2. Excluding
shipments to Canada, practically all US coal exports
are low-sulphur bituminous coal of metallurgical
quality. Roughly 75% of these exports are used by
the steelmakers for making coke with most of the
remainder used by public utilities.
US Exports of Bituminous Coal
1969
Destination
Thousand
Metric Tons
Percent of
Total
Canada
15,227
29.9
Japan
19.064
37.4
EC countries
10,838
21.2
Brazil
1,671
3.3
Spain
1,655
3.2
Other
2,549
5.0
Total
51,004
100.0
2. The importance of US coal exports has been
increasing recently because of growing shortfalls
elsewhere. The EC, already a net coal importer, has
been cutting back production. The United Kingdom
has not expanded production fast enough to meet both
* Heavy coking, low-volatile coal with no more
than 8% ash content and good coking characteristics.
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domestic and foreign demand,* and it barely meets
local power and heating needs. In Japan, output
has stagnated. These factors have been compounded
by an unexpectedly high worldwide demand for steel.
As a result, US coal exports rose 29% in the first
half of 1970 compared with the same 1969 period.
The increase to continental European countries was
almost 65% and to Japan 36%. However, exports to
Canada declined 9% in the face of increased domestic
output. Japan is by far the United States' largest
coal customer.
3. Canada is the most dependent on US coal of
the three main purchasers. Althcugh production in
the western provinces is rising, most of this is
exported to Japan, and the industrial East depends
on the United States for nearly 85% of its coal needs
(see Table 3). Mines in the Maritime Provinces are
Estimated Hard Coal Supply of Canada, Japan,
and the European Common Market
1969
Million Metric Tons
Canada
Japan
EC
East
West
Total
Production 3.3
5.3
8.6
44.7
171.8
Imports 15.6
Negl.
15.6
39.9
21.5
Exports Negl.
1.1
1.1
Negl.
2.2
Supply 18.9
4.2
23.1
84.6
191.1
Imports from
the United
States 15.6
0
15.6
19.1
10.8
* UK coal stocks are close to record Zows and are
adequate only if the winter is not especially cold.
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I CONFIDENTIAL
gradually being phased out. A substantial drop --
50% or so -- in coal from the United States would
have a major adverse impact on Canadian economic
activity. Canada uses large amounts of coal for
power, heating, and steel production, and while some
of the import shortfall could be made up by divert-
ing Western Canadian coal production now shipped to
Japan, the effort would be costly and in any event
would only amount to several million tons* per year
out of a total import need of about 16 million tons.
4. The EC is much less dependent on coal imports
than either Canada or Japan, Only about 10% of the
roughly 190 million tons consumed in 1969 were im-
ported. About half -- 11 million tons -- were from
the United States; the remain;ler comes mainly from
the United Kingdom and Eastern Europe. While EC
purchases of US coal declined nearly 50% between
1965 and 1969, they have increased rapidly this year
and are expected to continue to climb. A combination
of events has been responsible. Demand has been
greater because of other fuel shortages and rising
steel output, while supply has been less because
uneconomic mines have been closed. The United King-
dom normally an exporter to the EC, is experiencing
difficulty in meeting its own needs. A loss of US
coal would be felt both by EC steelmakers, who have
recently increased their dependence on US premium-
quality coking coal, and by public utilities.
Although almost all US coal purchased by the EC is
metallurgical quality, more than half is used by
public utilities because the delivered price is
lower than that of locally produced coal. US coal
has a lower sulphur content, which is important in
controlling pollution.**
5. Coal is a major US export. In 1969, coal
exports were about $594 million, ranking about the
same as items such as power machinery, steelmill
products, and nonferrous metals. Although coal
* Contracts caZZ for Canadian coal exports io
Japan to reach 6 m..llion tons in 1970 and 14 million
tens by 1975? The 15'70 amount is unlikely to be
reached, however, as "less than 1 million tons had
been shipped to Japan by the end of June.
*' Even in the United States, despite its higher
cost, low-sulphur coal iu in increasing demand by
public utilities in order to comply with new anti-
pcllution laws
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? UUN F'1VtN'1'IAL
exports accounted for less than 2% of total 1969
exports of $38 billion, they about matched the US
trade surplus of some $638 million.* Moreover,
coal exports are expected to reach $800 million in
1970.
Importance to Japan
5. US coal is critically important to Japan's
steel industry because it accounts for more than 80%
of the premium-quality coking coal consumed. Japan
does not mine premium-quality coal, and only small
amounts are available from other countries. Most of
the coking coal Japan produces requires blending
with premium=quality US coal to obtain coke with
the compressive strength necessary for efficiently
operating Japan's large blast furnaces. Premium-
quality coking coal will increase in importance as
Japan continues to build even larger blast furnaces,
some of which are scheduled to begin operations late
in 1970 and in 1971.
7. The Japanese steel industry's heavy reliance
on imported coking coal has grown in recent years.
In 19.65, imports accounted for about 55% of the
industry's needs, but by 1969 the share had reached
75%. This shift reflects both rapidly growing steel
output -- doubling between 1965 and 1969 -- and
stagnating domestic coking coal output -- about 12
million tons (see Table 4). Japanese coal mines
have been st::adily closing chiefly because reserves
are of too low quality to be commercially exploited.
9. In 1969, coking coal requirements reached
52 million tons. By 1971, Japanese steel officials
predict a need for 62 million tons. With domestic
production constant, imports should rise from 40
million tons in 1969 to more than 50 million tons
in 1.971. These increased imports would be supplied
under long-term contracts signed in earlier years.
Steelmakers have been unable to build any signifi-
cant stocks because of the rapidly rising require-
ments. Periodically, they buy coal on a spot basis
* Balance.-of-payments concept.
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Table 4
Japanese Supply of Coking Coal
Thousand Metric Tons
Country of Origin
1965
1966
1967
1968
1969
Jan-Jun 1970
Australia
6,620
8,054
8,983
11,985
15,543
7,799
C~
Canada
751
838
815
993
929
833
O
z
Communist China
475
657
891
66
0
0
Poland
0
106
727
996
1,140
515
z
USSR
1,149
1,477
2,220
2,667
3,057
1,414
H
United States
6,904
7,068
10,117
14,229
19,064
11,992
Other
5
21
277
31
264
41
'Total imports
15,904
18,221
24,030
30,967
39,997
22,594
Production
12,350
13,111
12,374
12,380
12,450
4,311
Total supply
28,254
31,332
36, 404
43,347
52,447
26,905
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to meet temporary shortfalls occurring when receipts
of coking coal under long-term contract are inad-
equate.*
9. Japan's imports of coking coal from the
United States nearly tripled between 1965 and 1969,
when they reached 19 million tons. At the same
time the US share of Japanese imports rose from 40%
to about 50%. Australia, the other major supplier,
provided about 40% of Japan's needs in 1969, while
Canada, the USSR, and Poland accounted for most of
the rest (see Table 4).
Appraisal of Alternatives to US Supplies
10. The Japanese would attempt to offset any
decrease in US shipments by trying to increase
imports from other sources. Tokyo already has taken
steps to obtain substantially larger quantities
from Australia and Canada and to increase imports
from Poland and the USSR. Most of these arrange-
ments are designed to meet the long-term needs of
the expanding steel industry. Fulfilling these con-
tracts requires developing new fields which will
not begin increasing supplies to Japan appreciably
before 1971. The expected increased supplies under
older contracts will just match the industry's normal
growth requirements of the next few years. Moreover,
there remains in both the short and long run the
problems of obtaining sufficient quantities of the
high-coking, low-volatile, low-ash coal necessary
for blending. Reportedly, most of the new non-US
coals are medium to high volatile and high-ash coals.
11. The Japanese steel industry in the short run
could not improve blast furnace technology suffi-
ciently to compensate for a substantial decrease in
US coking coal exports.. Japanese blast furnaces
currently use the best technology available. In
1969 the coke rate** of Japan's blast furnace was
the lowest in the world -- 504 kilograms (kg), com-
pared with 577 kg in West Germany, more than 600 kg
'' The Japanese recent7,:j announced a voluntary
restriction on spot pur^-?cases of US coking coal, but
the amount of coal purchased on this basis is quite
smaZZ in comparison with total imports from the
United Statese
'E* Amount of coke consumed per ton of pig iron pro-
duced.
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in the United
States,
656 kg in the United Kingdom,
and 685 kg in
France.
Although the coke rate
in
Japan is expected to dip to slightly under 500
kg
in 1970 and some further improvement might be
forth-
coming in early 1971,
would be negligible.
the savings in coking
coal
12. Japan does plan to reduce its needs for
imported coking coal by developing substantial capac-
ity for producing pre-reduced iron ore pellets and
some capacity for direct reduction of iron ore.
But both of these techniques are in the early
development stages and will. not be available soon.
Japan could use a higher proportion of the light,
high-volatile coals available from non-US sources
by adopting the practice of stamping to produce a
denser coke.* It is doubtful, however, that Japan
could build or buy sufficient stamping equipment in
the short term to appreciably reduce its need for
high-quality US coal. Using a somewhat larger pro-
portion of lower quality coking coal is an option
open to the Japanese -- providing the shortfall of
import of US coal is not too large -- but this would
result in poorer quality coke and would reduce blast
furnace efficiency.
13. Probably Japan would attempt to compensate
for any substantial loss in US coking coal in the
short run by large injections of heavy oils in its
blast furnaces. Last March on an experimental basis
for one day's operation, a coke rate of only 393 kg
was achieved at Nippon Steel's Tobata Works by in-
jecting 90 kg of heavy oil per ton of pig iron out-
put in the No. 1 blast furnace. This exceptional
performance was achieved by very careful selection
of the blast furnace iron ore burden, which may not
be possible on an industry-wide basis.
Stamping, used by some Communist countries, is a
method whereby coking coat is ground very fine and
compressed in the coke ovens by means of a ramming
or tamping device.
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1 CON Ii 1i)LN'l'IAL
Conclusions
14,? A suspension of US coal exports would have
a serious short-term economic impact on Canada and
Japan. Populous Eastern C?Anada, almost wholly
dependent on US coal, would suffer front power short-
ages, heating deficiencies, and lower steel, output.
The steel output of highly industrialized Japan
would almost certainly decline sharply, causing
major economic problems. US coal currently provides
nearly 40% of Japan's coking coal and more than 80%
of its premium-quality coking coal. The Japanese
steel industry would find it difficult, if not im-
possible, in the short run to cope with any substan-
tial reduction in US shipments. Current Japanese
blast furnace and steelmaking technology requires
premium-grade coking coal from the United States --
particularly for blending with the coals of lesser
quality available from other sources. There is
almost no short-run possibility of obtaining needed
coking coal from either Japanese mines or non-US
sources to offset US shipments. Furthermore, short-
term changes in blast furnace techniques can lower
coke import requirements only modePt:iy. Although
much less adverse than in Japan, a loss of US coal
would be felt most by EC steelmakers who have recently
increased their dependence on US premium-quality
coking coal, but very severe problems are not likely
to develop.
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