While supply cutbacks are underway, demand continues to grow steadily. Steel production, which drives the demand for metallurgical coal, has continued to rise gradually, growing by 2.4% in 2013 - in line with the average growth rate for steel production of 2.6% per year since 1980.5 Drivers for steel demand include urbanization in emerging economies, infrastructure spending and automotive demand.Also, the demand for metallurgical coal is not jeopardized by competition in the energy sector from oil and gas, like conventional coal. Metallurgical coal is a specific type of coal that isn't used to generate electricity. We often point out that bull markets begin when shrinking supply encounters steady or rising demand for a commodity. In a bear market, producers cut costs and lower their general and administrative costs. They defer or cancel expansion plans, and put uneconomic mines on care and maintenance. Eventually, the lower supply cannot keep up with demand, which sets off an uptrend in the commodity price and encourages new investment.
1 Teck Resources, Second Quarter 2013 Results2 https://www.google.com/finance?cid=660747 3 https://www.google.com/finance?cid=660543 4 Google Finance website. Alpha Natural Resources, Inc. 5 World Steel Association: http://www.worldsteel.org/statistics/statistics-archive.html "Met Coal" Could Be Reaching a Cyclical Low from Coal Investing News