Japan Finds Foreign Coal Cheaper

The government has decided to reduce Japanese coal production by nearly 40% over the next five years, to 10 million tons a year, a step that will eliminate the jobs of more than 10,000 of the country’s 24,000 miners and result in increased coal imports.

The decision is widely regarded as the beginning of the end of government support for the domestic coal mining industry, which produces coal at a much higher price than most coal-exporting countries.

Officials described the decision to reduce production as the first concrete step in line with Prime Minister Yasuhiro Nakasone’s promise last April to implement the controversial Maekawa Report, which called for transforming Japan’s export-oriented economy by emphasizing domestic sources of growth and boosting imports in uncompetitive industrial sectors. The report was prepared by a commission headed by Haruo Maekawa, a former president of the Bank of Japan.

The decision to cut coal production, made by the Ministry of International Trade and Industry, followed recommendations submitted late last month by the Coal Policy Council. Domestic production of no more than 10 million tons by the end of fiscal 1991 is expected to result in the closure of at least six--perhaps as many as eight--of Japan’s 11 major mines.

The decision was announced after the ministry conducted negotiations with the steel industry and the electric power industry.

The steelmakers agreed to buy 1.7 million tons of coking coal in the present fiscal year at a price of 24,920 yen ($155.75) a ton--1.45 million tons less than last year, and $6.25 less per ton. The ministry agreed to free the steelmakers from any obligation to buy domestic coal beginning in fiscal 1991.

The nine electric power companies agreed to buy steam coal at gradually reduced levels, from about 12 million tons last year to 8.5 million tons by 1990. The power companies will pay $125 a ton, $3.13 less than last year.

At the end of September, the import price of coking coal from the United States was $61.20 a ton, from Canada $66, and from Australia $47, according to the Japan Coal Assn. Steam coal used in the production of electricity was being imported from Canada at $43.10 a ton and from Australia at $40.70.

Hint of Further Cutbacks

The ministry refused to give in to the power companies’ demands for a specific date for an end to required purchases of domestic coal, but Sho Nasu, chairman of the Electric Enterprises Federation, said the companies’ agreement to buy 8.5 million tons in 1990 was not a promise but just a “goal we will make efforts to achieve.”

There are hints that the coal production cutback will go even beyond the announced figure. Analysts said the power companies expect more mines to close than the Coal Policy Council’s production goal implies. This would reduce the amount of domestic coal available to the power companies to less than 8.5 million tons a year.

Although the government is expected to provide large subsidies to help retrain and relocate displaced miners, the council said subsidies to keep mines operating should be discontinued.

The Coal Policy Council, pointing to more than $12.5 billion in subsidies that the coal industry has received during the past 20 years from the government, the power firms and the steel companies, called on mining firms to decide whether to stay in business “on their own responsibility as private corporations.” Until 1960, Japanese coal mines were the No. 1 source of Japan’s energy needs.

The council offered no guarantees to ensure a production level of 10 million tons a year. Analysts noted that last year’s production already had fallen 4 million tons below the ministry target of 20 million tons. Another shortfall could occur under the new program, they said.

Even as the council issued its decision, the first of the mine closings was taking place.

Mitsubishi Coal Mining Co. shut down its Takashima island mine in Nagasaki prefecture and dismissed the 956 workers there. The company arranged to put 813 of them to work at mines elsewhere. There is no other industry on the island, and the closing is expected to deplete the population. Other closings are expected to devastate communities on the islands of Hokkaido and Kyushu, where major mines are located.

Reliance on Imports

According to forecasts by the Overall Energy Study Assn., coal demand in Japan--110.4 million tons in fiscal 1985, of which 93.7 million tons was imported--will increase to 160 million to 170 million tons by the year 2000. The increased demand will be satisfied by imports.

The United States has been pressing Japan, its No. 1 market for coal exports, to buy more American coal. But the effort has met with little success. American exports of coking coal to Japan fell from a high of 21.6 million tons in 1982 to 13.9 million tons last year, and reportedly will decline again this year, to about 10 million tons.

The Japanese are reported to have signed contracts with 18 coal mining operations in foreign countries owned in part by Japanese trading companies and other Japanese firms to fill the expected increase in coal imports for the next 10 years.