By Jim Ross
As many companies are, J.H. Fletcher & Co. is weathering the downturn in the coal industry, but its CEO says it’s been rough.
“We’re running. We’ve got our heads above water, but it’s been difficult the last three years or so,” said Gregory Hinshaw, CEO of the Huntington-based manufacturer of mining equipment.
Hinshaw said Fletcher’s bread and butter is equipment for underground mines. In 2011, Fletcher built 400 pieces of mining equipment. Two years ago, that was down to fewer than 200, he said.
At the end of 2012, Fletcher offered an early retirement program to some employees and let its temporary work force go. That took it down to a core of about 250 employees.
Fletcher now leans more on what used to be a small percentage of its business, Hinshaw said. A combination of international and non-coal equipment has become half of the new equipment business.
Two weeks ago, a company employee based in Beckley returned from Israel, where he started up two machines at a copper mine. Another has been in Australia, and a person was scheduled to leave this week for China.
“We’re spreading ourselves thin for a small company like ours,” Hinshaw said.
Fletcher builds new equipment and rebuilds older equipment. It also sells parts. It has an engineering, assembly and warehousing operation in the Altizer neighborhood of Huntington, and it has a smaller assembly operation in Kentucky.
Fletcher also has manufacturing partners in Poland and South Africa. Partial assembly is done in the United States, and final assembly is done in those two countries, he said.
The strong U.S. dollar makes Fletcher’s equipment more expensive in international markets.
The bright spots for coal right now are India and South Africa. India’s market will grow, but India does not have centrally controlled economy the way China does, so growth there has been slower, Hinshaw said.
“There’s still a lot of opportunity for coal, but it’s mainly in Third World countries,” he said.
Trends in the domestic coal industry that had benefited some areas are beginning to reverse, Hinshaw said. One example is the Illinois Basin, which has been taking market share from Central Appalachia, which includes southern West Virginia. The recent wave of power plant shutdowns took out some plants that had burned Illinois Basin coal, so now there is oversupply of Illinois Basin coal in the market, he said.
Last year saw Fletcher do well in the Northern Appalachian region when Murray Energy bought five mines from Consol Energy and Murray bought machinery for those mines, Fletcher said.
Now, with the industry in a slump, mining companies are delaying replacement of old machinery with new.
“But over time it will catch up with them,” Hinshaw said.
The rebuild market is falling off, too, Hinshaw said. The parts business is holding up as mines run their older equipment longer between replacements or rebuilds, he said. When companies go in to bankruptcy, as some have, they must continue mining coal to keep the cash flowing, so they keep up their parts purchases, he said.
“The next big blow for us is whatever’s going to happen with Alpha (Natural Resources) and Arch (Coal). We’re highly concerned with what happens with those two good customers,” he said.
Hinshaw said the bottom has dropped out of the market for metallurgical coal internationally. What sold for $300 a ton a few years ago sells for less than $100 a ton now, he said.
Hinshaw agrees with what some executives of coal-related businesses have been saying when they predict the market for coal will get worse before it gets better.
“All the customers I’ve talked with don’t see any upturn coming next year,” Hinshaw said. Coal companies must be upbeat about their industry, but “it’s pretty bad when even the leaders of those companies aren’t optimistic about where the market is going.”
From The State Journal