Coal Production Will Increase According to CIT Industry Outlook; Prices and Exports Expected to Drop.

Business Editors

LIVINGSTON, N.J.--(BUSINESS WIRE)--May 18, 2000

Normal weather patterns and continued economic expansion will contribute to slow but steady growth within the coal industry, according to CIT Equipment Financing's Sixth Annual Coal Mining Outlook.

The forecast, which was published this month, predicts that in 2000 coal production - which includes steam and metallurgical (met) coal - will increase .5 percent to 1.10 billion tons, followed by a .6 percent increase or 1.12 billion tons in 2001.

"A return to normal weather patterns should have a positive impact on the industry," said Michael Paslawskyj, vice president of economic research at CIT. "More heating days during the winter and cooling days in the summer will drive demand for electricity and consequently spur coal production." He adds that a strong economy, as well as a flattening in nuclear generated power in 2000 will also create a demand for coal-fired electricity.

The Outlook states that while steam coal will continue to lead in terms of consumption, met coal will at best stagnate and in all likelihood decrease. "New technologies are driving down demand for met coal by allowing the few remaining commodity steel producers to manufacture with lower grade coals," says Paslawskyj.

Prices and Exports

According to the Outlook, the cost of coal will continue to decline with prices per ton averaging $17.10 and $17.00 in 2000 and 2001, respectively. "Western coal prices have not risen as originally expected and the cost of eastern low-sulfur coal has decreased this year due to large stockpiles," said Paslawskyj. "The bottom line is that coal prices are heading down yet again, and the road back to even moderately higher prices will be a tough one."

The Outlook also predicts that coal exports during 2000 and 2001 will, at best, move sideways. "We're not optimistic about exports," commented Paslawskyj. "They dropped by 25 percent to 57 million tons in 1999 the lowest level recorded in 20 years - and we expect that decrease to continue."

Paslawskyj says the drop is, in part, due to the world supply of steam coal growing more rapidly than world demand, as well as the fact that U.S. producers must now compete with other countries in international markets. "It's a lot cheaper for Australian coal producers to transport coal to Asia than it is for U.S. companies," says Paslawskyj. "Consequently, most U.S. steam coal is not price competitive in international markets." He adds that in terms of met coal, the same advances in technology that are reshaping U.S. demand are also negatively impacting met coal exports.

West Is Best

According to the Outlook, the western region of the country, which now accounts for 46 percent of all U.S. coal production, will increase to 550 million tons in 2001 - a 6.6 percent increase over the 1999 level of 505 million tons. In contrast, production in the Appalachian and Interior regions will continue to decrease with production in 2001dropping to 415 and 147 million tons respectively - a 3.5 and 10 percent decrease over 1999.

"The reason for the shift in production are the Clean Air Act Amendments of 1990 which mandate a very significant reduction in sulfur dioxide emissions," say Paslawskyj. "As a result, production will continue to shift from the high sulfur coals of the Illinois Basin, Ohio Basin and Northern Appalachian regions to Western coals which are cleaner."

CIT Equipment Financing offers companies a wide variety of financial solutions including equipment leasing and financing, loans for commercial real estate, construction financing, franchise financing, and Small Business Administration loans. It is a unit of The CIT Group (NYSE: CIT, TSE: CIT.U). With $53 billion in managed assets, The CIT Group (www.cit.com) is one of the nation's largest commercial and consumer finance organizations.

For a complete copy of the Coal Mining Outlook, please contact Ann-Margret Crater, vice president, marketing at [phone] or [e-mail].