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No Smog in Arch Coal's Future

SmogSteve Leer, Chairman and Chief Executive of Arch Coal, one of the nation's largest steam coal producers, warned that a world coal shortfall could last at least two or three years and could reach 70 million tons next year. Nonetheless, from his perch, with prices rising, the air must smell pretty clean.

Arch Coal LogoFor all its unfriendly environmental consequences, coal still provides approximately half of all U.S. electricity, and accounts for 40 percent of generation worldwide, according to the World Coal Institute.

Speaking at JP Morgan's Third Annual Basic & Industrials Conference in New York on Tuesday, Leer suggested that strong global consumption, particularly in developing nations like China and India, combined with supply challenges -- maturing coal basins in Central Appalachia and traditional coal export nations like Poland and South Africa, port congestion, and poor weather conditions -- will leave the world short of thermal coal by millions of metric tons in 2008, with continued supply deficits predicted in 2009 and beyond.

During 2007, Arch sold approximately 135 million tons of coal, principally to power plants and industrial facilities, fueling approximately six percent of all electricity generated in the U.S.

Planned new domestic coal-fueled electricity generation capacity announcements exceeded 24 gigawatts as of Dec. 31, equating to more than 84 million tons of additional annual coal demand, according to Leer.

Through its national network of eleven mining complexes, Leer said Arch's 2.9 billion ton recoverable reserve base is positioned to profit from the demand for -- and service to -- almost two-thirds of these U.S. plants.

Steam prices per ton at Arch climbed an average $1.59 to $18.49 a ton in the first quarter, up 9.4 percent from last year, reflecting stronger coal fundamentals.

Arch sold approximately 115.7 million tons of coal last year. As the U.S. coal market transitions from a national market to an integrated global coal-supply network, Leer plans -- to borrow a surface-mining term -- to dragline the company's footprint beyond domestic borders, too. Historically, coal sales to foreign customers were insignificant, but the company looks to increase net U.S. exports by 30 million tons in 2008.

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