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Though coal mining is challenged, extraction of other resources may help fill in the gap. (Photo courtesy Caterpillar)

Mining Equipment Outlook 2019

Mining is Shifting Gears

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It used to be that when you talked about mining, you were predominantly talking about coal. And despite some political promises to the contrary, the future of coal remains unclear. 

But will the fate of coal ultimately change the fates of mining equipment manufacturers and the service centers that sell to them? 

The answer is not as straightforward as it might seem, according to Eli Lustgarten, owner of ESL Consultants. He says while the mining equipment sector is intimately tied to the coal industry, there are a number of other factors that influence the market, including the macroeconomy and rising demand for alternative mining products, including copper and other minerals used in the production of electric vehicle batteries.

“One of the biggest markets you can think of for mining equipment is coal,” he says, “but mining has changed its tone and tenor over the last decade substantially.”

According to the Washington-based National Mining Association, coal mining represented 24 percent of the production value of U.S. mining operations in 2018 and accounted for 26 percent of mining employment. “On the coal side, the rapid transformation of the electric grid is causing the premature retirement of coal-powered plants, which is sure to create problems that many have not yet contemplated,” says Ashley Burke, senior vice president of communications at NMA.

In the last seven years, U.S. coal production has dropped more than 30 percent, from 1.1 billion short tons in 2011 to 755.5 million short tons last year. At its low point in 2016, the U.S. coal industry produced 728 million tons. That same year, coal exports fell to 60.2 million tons, less than half of the 2012 total of 125.7 million tons.

“Coal was the predominant fuel in the United States for powering electric utilities, but a couple of year ago it dropped into second place behind natural gas, which has now become the fuel of choice,” says Lustgarten. “We have gone from relying on coal as a fuel, with hundreds of years of reserves, to the point where we’re basically closing coal plants.”

In addition competition from alternative energy sources such as natural gas and wind power, coal’s decline has also been hindered by shrinking electricity demand. Total U.S. electricity generation has declined six of the last 10 years. 

“A lot of that is attributable to efficiency,” Lustgarten explains. “Everything has gotten much more efficient, and that kind of efficiency has helped reduce electric use.” When you couple this rise in efficiency with the timing of the Great Recession, he says it’s easy to see why electricity use has gone from an annual growth rate of 1-2 percent to regular negative demand. 

“The combination of weak economic growth and [energy] efficiency basically limited the demand for electricity, which means the utilities didn’t have to buy very much,” Lustgarten says. “The need to build a new coal plant, the need for a new baseline deliverer of electric power, wasn’t there.” 

Over the past decade, the coal industry appeared to be in a significant decline. But then, Donald Trump was elected president and suddenly coal started to recover, or at least fend off the decline. “The coal sector has been, to some degree, stabilized by the Trump administration,” Lustgarten says. “Not necessarily by improving demand, but by basically getting rid of some of the environmental rules and regulations to at least allow coal to stabilize in its usage.”

A recovering economy and increased exports have also helped. In 2018, coal exports were 115.6 million tons, up more than 90 percent over the 2016 low point. “While there may be domestic declines in the U.S., global demand is expected to remain stable,” Burke says, citing the International Energy Agency’s outlook that global coal demand will stay relatively steady through 2023.

For Pella, Iowa-based equipment manufacturer Vermeer, coal doesn’t represent a significant part of their customer base. The company’s Terrain Leveler surface excavation machines serve the open-pit mining industry, as opposed to the traditional drill and blast operations.

Tyler Sikora, mining application engineer at Vermeer, says demand for mining projects have been supported by the minerals market, particularly bauxite for aluminum production and the various ores used in battery technology. “There’s a lot of things that are going to help increase the demand for our machines,” Sikora said.

However, one of the biggest boosts for mining demand is expected to come from the electric vehicle industry, which will not only require excavation of minerals used in battery production, but EVs and EV charging stations will also boost electricity demand.

This could be a win-win for mining equipment, which, in addition to the minerals market, stands to benefit if some of that increased electricity demand goes back to coal.

“You can see the change on the horizon, it’s called electric vehicles,” Lustgarten says. “Electric vehicles will require more ability to generate electricity, and ultimately [EVs] will require three times the copper than we have in the cars today. The nature of increasing demand for electricity and changing technology means the seeds have been planted.”

Regardless of coal’s tenuous future as a major source of energy production, the need for mining equipment will undoubtedly get a boost from the need for copper. 

Similar to the electric utility industry, the copper market is expected to get a similar charge from the much anticipated EV revolution. 

“As you electrify vehicles, you increase the amount of copper used per vehicle,” Lustgarten says. “There’s clearly going to be a movement towards hybrid and electric vehicles…Then you have the charging stations. So, there is a significant amount of copper in the future.”

Experts agree that electric-vehicle technology will have a dramatic impact on copper demand over the next decade. According to the International Copper Association, Washington, there will be an estimated 27 million electric vehicles on the road in 2027, compared with 3 million in 2017, raising copper demand in EVs from 185,000 metric tons in 2017 to 1.74 million metric tons in 2027. The ICA adds that each EV charger will require 0.7 kilograms of copper, with fast chargers adding as much as 8 kilograms of copper.

And while EVs are leading the way, green technologies of all kinds are expected to affect mineral demand.

“One of the significant issues you may have noticed in the news is the widespread prediction that demands for minerals resources are going to skyrocket with the EV revolution, minerals resources needed for battery power around green technologies, and other technological advances,” Burke says. “So, these increased demands are expected to impact mining extensively.”

All of these factors have made Deerfield, Ill.-based Caterpillar, one of the world’s largest manufacturers of mining equipment, optimistic about the future. In January, the company said it believes global economic conditions and favorable commodity price levels will drive miners to increase capital expenditures for both equipment replacement cycles and expansions. Additionally, Caterpillar executives said higher machine utilization levels should support aftermarket parts growth. 

“For Resource Industries, we believe commodity prices will remain supportive for investment and mining companies will increase their cap ex budgets in 2019,” Caterpillar CEO Jim Umpleby told investors. “Demand for heavy construction in quarry and aggregate equipment should also remain strong.”