22 MARCH 1946, Page 7

WHAT COAL WILL COST

By D. N. CHESTER

MANY statements have been made recently by sundry eminent persons to the effect that the future of Britain depends on coal. Most imply some kind of direct relation between the physical output (tons of coal) and industrial prosperity. This forecast of a constant, indeed almost insatiable, need for British coal may sound strange coming at a time when other eminent persons are hinting that nuclear energy may supersede existing forms of power ; but that is perhaps understandable. More significant is the general disregard of the price factor. For past British industrial development has been based on plentiful supplies of cheap coal, and it is cheap coal rather than simply coal which will influence her future prosperity.

Since August, 1939, the average pit-head price of coal in this country has risen by 22S. per ton, an increase of some 120 per cent. During the same period wholesale prices as measured by the Board of Trade index have risen by some 7o per cent.—an indication of the abnormal increase in coal prices. But prices were rising even before the war. The Coal Mines Act, 193o, combined with brisker demand, enabled the coal industry to raise its net proceeds per ton from 14s. id. in 1930 to 17s. ltd. in 1939.

It is clear that the existing high level of coal prices must have repercussions on the prospective demand for coal. In 1939 we pro- . duced 231 million tons of saleable coal. Of this, 46 million tons were for export and ships' bunkers, leaving 185 million tons for internal consumption. Between the two wars our exports fell steadily ; in the last year or so they have almost ceased ; and the present high price is likely to tell against full recovery of the pre- war trade. More ships are likely to change over to oil or to bunker abroad. France, Italy and Spain may continue as important customers, but it would be optimistic to assume the pre-war export demand. Possibly 20 million tons, or under half the 1939 figure, is a reasonable guess.

The figure for internal consumption might also be substantially reduced. The full results of the war-time drive for fuel economy have been masked, partly by the difficulty of introducing new plant, but more particularly by the lower quality of coal supplied. In the case of electricity-generation, for example, consumption of fuel per unit sent out has actually risen during the last year or so, thus reversing a marked downward trend since the grid was established— the main cause being unsuitable or low-grade coal. An economy of to per cent. over the whole field of pre-war industrial consumption is not out of question, once cleaner, properly graded and more suit- able coal is again provided. The provision of new plant, particularly the replacement of most of the existing blast-furnaces by modern large-scale furnaces, will enable the steel industry to make substan- tial savings in coal. Given reasonable imports of high-grade ore, the present average consumption of 4o cwts. of coal per ton of finished steel might well be reduced progressively to 35 cwts., a saving of about 3 million tons of coal. And if it should be possible in the future, as it was in many of the inter-war years, to impart substantial

quantities of pig-iron and semi-finished steel, the fuel consumption of the industry might fall even further. Unless the steel industry can offset the high cost of British coal by super-efficiency in other directions, the demand for British steel, particularly for export, is likely to fall.

In the case of electricity, another major fuel-user, whilst there is still room for further reduction in coal consumed per unit sold, it is almost certain that rising demand for electricity will cause the industry's fuel demand to rise. Again, a high price for British coal will increase the attractiveness of alternative sources of supply and alternative methods of providing heat and power. Coal imports to areas suitably situated to obtain Polish or German coal, though out of the question at the moment, may well be a possibility in a few years' time ; in fact, the big increase in British coal prices may have done for our coal industry what the opening up of the cheap wheat areas did for our agriculture. Even if imports of cheap coal are never likely to be large, a change-over to the use of liquid fuel, whether for industrial or domestic use, is well within proba- bility. Two factors are hampering the greater use of liquid fuel— abnormal tanker freights and the tax of about £r per ton. There ought to be scope for an early and substantial reduction in ocean transportation costs, whilst the tax—imposed in 1933 mainly to protect the coal industry—could be abolished any time the Government so wished.

The high price of coal has undoubtedly tilted the balance more in favour of liquid fuel, and there is scope for increased use by the steel, cement, non-ferrous metal and similar large coal-using industries. A saving of 5 million tons of coal per annum on this item is not out of the question. Also likely to be more in the picture in future are various schemes of hydro-development ; the two main pre-war obstacles—cheap coal and high interest rates—have both moved in favour of these large schemes of capital development. To sum up, in certain circumstances the internal demand for British coal might well fall to, say, 15o million tons over a period of years merely by consumers reacting to high coal prices. With exports at, say, 20 million tons, the total production of the industry might need to be no higher than, say, 170 million tons, or 6o million tons less than was produced in 1939.

It may be argued that this discussion of the possible consequences of a continued high price for British coal is rather unreal, because substantial price reductions will be sure to occur as soon as the new Coal Board start with their great drive for increased mechanisation and higher output per head. What price-savings are in fact likely? The Reid Report is singularly silent on such matters as costs and prices ; it was a technical rather than an economic document. This Committee were even unwilling to put a figure to the increased output per head likely to arise from all their suggestions. They indicated, however, that it ought to be possible to raise British O.M.S. (output per man shift) to that obtained in Holland or the Ruhr, where natural conditions are broadly similar. Output per man shift was higher in Holland than in the Ruhr, reaching about 1.7 tons in 1937-1938. In 1945 the British O.M.S. averaged I ton, so that on this reckoning an increase of 70 per cent. may be possible. Nobody suggests that such an increase could be obtained easily or quickly, and therefore it would be safer to take a 5o per cent. increase in output per man shift as a basis for discussion.

Coal-production costs can be divided into two main groups: costs which vary almost directly with quantity produced (e.g., royalties, stores and timber, certain wage costs, and miners' welfare fund contributions), and costs which remain fairly constant whatever the total production or whatever the output per man (e.g., overhead management expenses). Wages—representing two-thirds of total costs—are paid partly on day rates and partly on piece rates. Unless there are readjustments in piece rates, this part of the wage-bill will remain substantially the same per ton—in other words, probably something like one-third of total wages costs, or about 8s. per ton, would be little affected by increased O.M.S. Altogether then, and without plunging unnecessarily into complicated arithmetic, a 5o per cent. increase in O.M.S. would show a saving of about 6s. per ton on 1945 production costs. From this would have to be deducted the capital charges and depreciation on the heavy new capital expendi- ture—possibly not much less than Is. per ton. And further increases in wage costs, due to shorter working week, better conditIonS, etc.—

are not out of question. It is therefore doubtful whether coal prices to the consumer are likely to be reduced by much more than 5s. per ton within any reasonable future. Such a reduction would still leave pit-head prices over 90 per cent. above their mid-1939 level.

As a tailpiece, it is interesting to reflect on the combined effect of lower demand and higher output per head on the total number of miners required in the industry. In 1945 the average output per man was about 25o tons per annum ; a so per cent. increase would raise this figure to 375 tons. The number of miners required to produce 17o million tons of coal at this higher rate of output would be about 450,000. This is some 250,000 fewer than are employed at present in the industry. In these figures lies the solution of the British coal problem—a search for cheaper alternative fuels combined with a smaller number of miners receiving high wages in a highly mechanised industry.