No. E - 195 RETUP"'l T·J \ FILE COpy ",~ '" ,l 67123 .. t .; t This report is not to be published nor m a ; l it be quo~ed as representing the Bank' & views~ J INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT EUROPEAN COAL OUTLOOK November 29, 1951 Economic Department Prepared by: S. Lipkowitz M. C. Beltranena EUROF3ALT COAL OUTLOOK Introduction In the immediate post-\I/ar period, 'I'lertern EuropJ:.1 suffered from a severe coal shortage itlhieh reached a peal': in 1947, '"Then net 1;:1- ports amounted to 42 million tons.1:.L. Net imports dropped rapidly in the folloNing three years, reaching 8, low of 7.6 million tons in 1950. In 1951, hot-rever, net imports h~we increased qUi te sharply to an estic- ated" million tons. ~a..... ''/hat factors account for this marked che.nge and to ,,!hat ex- tent are these changes due to non-recurring factors? Appropriate ans\'rers to these questions are significant for the be~lance of :oayments position of '~'lestern Europe, eSl::l8cially itJhen one realizes that in 1951, 24 million tons will be imported from the USA at a landed cost of e.bout $22 per ton, made up of $10 (average) for co[l f .o.b. vessel, and $11 - $13 freight and insurance, much of '"Ihieh I1Ust also be paid for in US dollars. Imports fror:1?oland in 1951 \,;1.11 appro:dlT'8.te 10 million tons, "Ihile imports of 1 to 2 million from other &ree,s ,"rill be more than off- set by exports of 3 to 4 million tons to aree.s outside of 1Iestern Europe (Finland, Yugoslavia, L[' tin A!'lerica, Africa, etc.) ?ost-1:1ar trends The follo1dllg table sum',.;>arizes the Hes tern Europe t s coal position in the post-vIe.r period. J Est. Real consurrrotj.on : Appe.rs21t !;onsumntion after allow- Adjusted ances for for probable Total %of appar- changes in changes in Year Frod- net ant Consurnp- Un- recorded unrecorcled ended uction Ir:rports tion ad,justed stocks stoel.co.--- Dec. 1946 336.8 2l~0 5.9 357!8 n.a. n.a. Dec. 1947 365.6 42~l 10·3 407.7 397·3 394 Dec. 1948 396.7 25.7 6.1 422.4 423·0 421 Dec. 19/.;.9 430.5 15.2 3.4 445.7 440.2 441 June 1950 437.7 6.2 1.4 443.9 441.9 '+4':; Dec, 1950 439.6 7.6 1.7 44'1.2 451.2 452 June 1951 449.2 17.9 3.8 467.1 473.9 4'70 t. Dec. 1951 460 33 6.7 492 489 484 !lli: All figures in millions of metric tons. 11 i'festern Europe for the purposes of this paper, is defined as coexterLsive ':Ii th OEEO countries, except Turkay and Iceland. 2:.1 Ton refers to the :netrie ton (equal to 2204.6 1bs.). 3.1 A detailed explant? tion of the differences as betvleen the three measures of consum.:otion is contained in the section anti tIed "Consu!:h")t,ion 0lftlooku. - 2 - It 1,.rill be noted that after reaching a peak in 1947. \vestern Europe1s net imports fell off markedly until after the outbreak of the Korean \'ITar. The follo . . 1ing table de-picts the c08l trade of 1iestern Eur- ope as a vhole from 1947 - 19.51 inclusive: Net l!!morts from lTet Year l.rrm.gill USA Poland I:XDorts to othel'sl! 1947 42 34 7 1 ~2 1948 26 17 12 "J, -' 1949 15 10 11 6 1950 19.51 est. 7 32 a) 24 9 10 j2 Note: All figures in millions of ~etric tons. a) Less t~~n half million 1! leading SO'irces of imoorts other than TJSA and Poland "JerEl Czechoslovakia, anCi the Union of South Africo.. Exoorts from i'lest- ern Europe are destined for South America. Canada, EgY-:0t, G.nd European overseaS territories jn Africa. as \':ell as Finland and Yugoslavia,. In all years except 1947, such exports ht:,ve exceeded imoorts from sources other than USA and Poland. as indica ted. After the outbreak of ,'Jar in Korea. incius trial activi ty in- creased rapidly causing a sharp dse in the demand for coal. Noot L'ul.'opean countries had accumulc,-ted lcrge recorded stocks of eoa,l at the pi ts, notably :Belgium and France ,·'here production haa been reduced for this reason. ?robebly because of these; large stocks end because it \>,&s \'lidely believed that the Korean situation \-!Quld be terrlincted shortly after initial Allied successes in the fall of 1950, steps \'lere not taken promptly to incres.se iITDorts from the USA. The l:Ie"ory of slacl~elled in- dustrial e. ctivi ty in th;- yee r Drior to the Korean vJar 'It/as ap:')arelltly too fresh in ~ny r1inds to \-'arrant ex')en lS; Oct. 1947 - June 1950 ;;13.50 June 1950 - Oct. 1950 10.90 Nov. 1950 - 12.90 feb. 1951 15.70 l1ar. - June 1951 21.50 -4- Production Outlook A study of the trends in production of ",'[estern European coal indicates that production in 1951 '1td1l a:pproximcte 460 million tOllS. A breb.kdoi'1ll of this estir:''; te in comD€'.rison with output for earlier years and 1:/i th an eatin te of BCE for 1952, reade in July 1951, 1s given belm-r:. Production of hard coal in 1vestern Europe 1246 - 1952 (millions of metric tons) 1S52 1951 EeE estiwates Country 1946 '.1947 1948 1942 1242-50 1950 1950-~1 Est. ac.iusted United Kingdom 193.1 200.6 212.8 218.6 220.7 219.8 ;?21.5 225.5 228.5 Hest Germany 55·3 72.5 88.4 104.9 109·3 112·3 117.7 121.5 129 France 47.2 4.5.2 43.3 51.2 51.1 50.8 51.7 52.2 56.5 Saar 7.9 10.5 12.6 14.3 14.9 15.1 15.8 16.5 17.0 Belgium 22.9 24~4 26.7 27.9 27.5 27.3 28.0 29.5 ?c.5 ' -/ lJether- lands 8.) 10.1 11.0 11.7 12.1 12.2 12.4 12.5 12.5 Others 2.. 1 2.2 2.") 2.,1 2.1 2.0 2.1 2 .L To tail/ 336.8 365.6 396.7 430.5 437.7 4)9.6 449.2 460 475 ~: Estirna tes for 1951 e.re ba~ed on data for 8 - 10 months of out.Jut in that yee,r. Estim:.::tes for 1952 are based on ECE esti::1e.tes, dated July 3. 1951, modified up1;lard to t&ke account of more recent trends. espeda.lly in Dr< ana Belgium. and to include coal orodUced in the US zone of Germany. Consumotion , Outlook It should be noted that accurate statistics of actual consu~D­ tion are not available in most countries. In sorne countries, consum)t~.on call be estimated only on the basis of oroduction plus iMports. minus ex- ports. In other countries, data on stocks at mines are shown. but little or no dB.ta on stocks in consumers· hands are available; only in Great Britain are figures published regularly indicating the level of stocks in the hands of conSUflers; in the Case of a fe1:1 i':1Jorting countr:'es, s '~oc:'"=s at ports are published. Unp.er the circumstances, the availe ble dl ta for consurmtil)n (es- pecially in cases 1rlhere deta.iled data on stoc~s are not publisr.ed) cannot be correIa ted very closely 1:1ith other da. ta, For i-,'es tern Europe, as a whole. estimates of cor.sum:ption in the oost-war years have been :orepared on three different bases as a Drelude to an attenpt to estil1'.a:te probable consumption in 1951 and 19.52. These estune.tes nppecr in the table on page 1. ~I Totals do not necessarily equal sum of country fi€~res because of rounding. - 5 - The cht:tnges in consum0tion over the preceding year for the three different bases are shm"n belotV'; Percentage changes in cons~tion (year to year) Apnarent consumntion Estimated Real consumDtion Ur~.djusted Adjusted (After for for changes allowance for changes in in recorded probt.ble changes stogks stocks in unrecorded ~ tocks)l! 1947 14 al n.a.- n.a ..!!/ 1948 3.6 6.5 6.9 1949 5·5 4.1 4.8 1950 0·3 2., 2.5 est .. 1951 10·3 8.4 7.1 2:1 Cannot be cOffinuted because of insufficient data but un1i~,=ely to hLve exceeded 10% in vie"r of the sharp knmm increase in stocks in 1947 and the probable decrease in stocks in 1946. An analysis of the above ta"ole (e.nd of the figures on pE.ge 1) indicates that a year in '\-,hieh stocks are greatly increased (e.g. 19'~}7) is succeeded by a year of consolid8.tion (e.g. 1948), one in irlhieh ap)ar- eut consumption (unadjusted) shows a srraller rate of increase tr~n either of the consumJtion figures aojusted for stock cbE,nges. After a sharp decline in stocks in 1,9.50, i t is understandaole tb£.t e.pparent consum)tion (unaojusted) should sho,-l a very substanti&l increase in 19.51 over 1950. estir:a ted at 10% on the basis of data for 8 - 10 months of <:.ctuc1 out~)ut and tru:',e. :Because stocks "!'V'ere de,leted ra?idly in the latter pr"rt of 1950, i t c&n be reaoily a-.oprecic ted that importing countri as ';lould kke the necess8.ry steps to replenish their stocks \,'herever possible. Avail- aole ilita indicate that by the end of August 1951, a I1u;1ber of countries inoluding UK, Svleden, NOTI1a.y, and Portugal, hael increased their recorded stocks to a level above those held at the eonparable period in 1950. Re- corded stocks in Germany, Belgium and France were still below the cOJ:1par- able 19.50 levels at tPat time, but so~e increase in recorded stocks by the 911(1 of 1951 seer:1S Quite certe.in. Stocks in these countrj.es decl:i.I"ed steadily throughout 1950 "due to rauidly increasing consumpt1.on nnd a lag in output and/or imJorts, '\'rhlle in the latter pa:rt of 1951 ou.tput and iM- ports e.p:oear to oe rising rapidly C',ncl the ra te of increase in consutl)tion seel:JS to h ve slo\o!ed dovm. Furthermore, it is held. although it cannot be verified for lack of puolished data. that unrecorded stocks have l'isen sr..arply in r::ost countries, particu.larly '."here Government controls 011 inventories have -oeen least stringent or totally absent. This tendency has been accent\lated by fear of rising prices and scard ty pe.rticularly in the first half of 1951. To this phenor.:enon JTl.ay be ascribed the fact that recorded stocks have shown little increase and in sorne caSes fu.rther declines in the second and third - 6 - qu,,'lrter of 1951 at a tine when available supplies "rere increasing rapidly. It is believed that the great bulk of increases in unrecorded stocks r£d occurred by the end of the third quarter. Continued heavy availabilities of imoorted coal in the fourth quarter and record post-",rar internal output should eventually be reflected in increases in recorded stocks, particul- arly in the last quarter of 1951. The stabilize.tion of unrecorded stocks vlill be hastened by tight~ned restrictions on cred! t and by an apparent SlO\'ling d01:JP, in the rate of increase in industrial output. For the year 1951 as a whole, we estimate tr~t fully 8 Dillion tons \,rill have gone to replenish stocks; 3 r:1illion in recorded stocks and an estimated 5 million for unrecorded stocks. lihUe the :'ncrease in recorded stocks is relatively small (as compesed \d th 10 million in 19 l }7) the incre1se in unrecorded stocks is large (coI'lpared wi th an estilT'ated increase of 2 .,.. J million per year in 1947 - 8 and a decrease of 1 million in 1950). The up",rard movement in 1947-8 and the decHne in 1950 are pre... dicated on the trends of industrial activity and prices. In early 1950, it is probable that unrecorded stocks declined substantially tn vie'V'" a 6 ... 8% incref'se in industrial outDut CD.n be achieved 'iii th an increc:.se in cool consumption of about 3%. kking e-c- count of the possibility of operating thermal plants at unusually high rates of load. and assuP.ling th2.t household usage is not greatkr in- creased either because of a moderate "Tinter or by deliberate govern- mental limHa tions. It should also bB noted that if the estim:. tee for increas"'s in recorded and unrecorded stocks for 1951 &re 8ccur<~te, it is unlikely that there "rill be any s. ::preciDbJ"e chr~nge in the tot: 1 of such stocks in 1952. On the basis of an estimc.ted real consumption of 464 million tons in 1951. it is unlikqlJ that real consu!'1'otion in 1952 will exceed 500 million tons, an increase of 3.3%. . +252 Coa1,J3ala.nce Sheet If the foregoing estirrate is accurate, the c00.1 balance sheet for 1952 'lTould compare \'11th that for earli.:;r years, as folley,s (in mil- lions of tons); i~et trade Ni th others- Total Pro- Net l:!E.o r t s ~!:2!!L (Ir:1ports I- Year sUPEly duction imports USA Poland Exports... ) est. 1952 500 475 25 17 10 -2 est. 1951 492 460 32 24 10 -2 1950 447 440 7 e.) 9 -2 1949 446 431 15 10 11 -6 1948 422 396 26 17 12 -3 1947 408 366 42 34 7 +1 a) Less than one half million. - 9- On this basis, 11estern Europe is likely to incur an expendi- tUre for US coal equivalent at present prices to perha:ps$J74 mi1l5 on in 1952 as compered "Ii th e,n estirrB ted cost of $528 million in 1951. lTot all of this cost is incurred in dollars, since some of the coal is ship- ped in European flag vessels; in 1951 probably less than half' \1aS so slli;Jped. To the extent the, t coal imJ01'ts from the USA can be reduced, the se.ving is lik:ely to be entirely on dollar account since it r:>.a.y be assuf1ed toot dollar shipping is marginal for Europe and the availabili- ties of Eu:'opean vessels for this trade "'ill be at least as large in 1952 as in 1951. It ':1111 be noted t]w. t the expected saving on dollD.r il"iJorts ~mou~ts to 8,boul/$150 million, the landed cost of 7 million tons of .tlmer~can coal. Production in Western Euroue is exoected to increase by 15 million tons in 1952, almost equ8,1 to the amount of increased use. Since coal trade '\'dth other areas is exoected to remain at 19.51 levels, the reduction in imports from the USA as forecast is considered feas- ible only because imoorts in 1951 include an estimated 8 millior:. tons to replenish stocks depleted in 195n, a phenomenon unlikely to recur in 1952. After 1952, reductions in colI,s imoorts of coal trill depend alflost exclusively on the ability of lJes tern Jurope to increase coal output at a faster rate than usa.ge rises; recib.bly increased coal avail. 'bilt ties fron such non-dollar areas as South Africa [:.nc' lndia cannot be exoected in the short run. ',[hile ?olecnd could illcre:-- se her exoorts to '.'le8tern Europe and expand her output appreciably. such ac- tion "JOuld be tf),ken o~11y if M8.jor ch""nges in the 1.·rorlCt politicf'l s Hu- e tion occurred. ~!i th 8p)ropriate efforts "mel substantial ne\1 invest- nants. \'ies tern 3tn'ope could eliminf'c te her dependence on coal il:l:lOrted from the USA by the late 1950' s. If coal consum )tion 1:.19re to increase at p, rv.te of 2% per annum, an ineras.se in output at the rate of J~~ per ?J1UUm "muld close this gap in five years or less. 17 As indica.ted above, the estimated reduction for 1952 in purchGses of coller c08.l is almost "holly dependent on an accurate estima- tion of chenges in European stocks in 1951~ If the increase 1n stocks estlrrated for 1951 proves over optimistic. the reduction in dollar outlays "rill be less than e8tireted ..