In addition to that, there are a few mines coming into production for the first time this year. The bill makes no provision for that kind of situation. Upon the enactment of this law, mines that have come in within a few weeks cannot receive an allotment. Therefore adequate provision should be made by the committee to see that they should not be shut down or confiscated, because their expenditures have been made in good faith and they are just as much entitled to the benefit of them as those who have been in business for a long time. Now, there is another thing that has to be considered in this situation about taking an average of 15 years. The last 5 years have been a very hard 5 years, as a whole, in our industry. The coal industry has not suffered any more than the average industry, and perhaps not as much in volume. I think that its volume has been pretty well maintained. But certain producers have run long hours. They have built up big tonnage and have paid less wages than their neighbors. If you take that 5-year average period that will give them a premium because they ran longer hours and because they paid lower wages, and their neighbors who did not do that will be penalized because they were more conservative and because they protected the situation to a greater extent. I believe this district allotment is one of the most important things we have to consider. I wish to speak of just one illustration with which I am personally familiar. I have in mind a situation of one mine that last year had a production in excess of 650,000 tons. It employs in excess of 650 men. Under the proposed allotment set up in the Guffey bill this mine would add to the district in which it is located allotment of approximately 480,000 tons, but the mine itself out of the allotment would be given approximately 240,000 tons, because it has only been operating approximately 3 years, with an increasing tonnage each year. This would give this mine less than 2 days a week operation. It would greatly increase its cost of production; it would not allow the 650 men employed to earn a decent living; it would cause the better and more capable men to hunt new work and new jobs. That is a mine where all the men employed in it during the last 9 months of 1934 earned in excess of $6 per day. The tonnage from this mine would be transferred to some older mine or mines having average running time for 5 years instead of a short, growing running time during 3 years. I am sure the United Mine Workers do not want to give some mines 5 days' running time and others 2 days or less. I am sure the Senate committee does not want to be responsible for recommending a bill that would bring about such a situation. That is just what this bill does and will do in many instances, and in my opinion this will be the result in a great many mines in every district. Now the marketing provisions of this bill is one of the most controversial matters that has been before the coal industry for a long time. It is very difficult to get marketing provisions that will operate satisfactorily between the sections and within the sections, on account of the wide variation in costs. We had our conferences, starting last July, on this subject. We have conferred with the representatives of the mine workers about it. They have asked us for specific suggestions and I must say in fairness to them that we have never been able to give them an agreed-upon program. In their suggestions about the bill they have been handicapped by the fact that the producers have not suggested to them a definite program. But the sale of coal is a very large problem. We are confronted with competition which has been described here. I was very much interested in the report that Judge Warrum read from, a report that was made to the President by the Natural Resources Committee. It was a report gotten up from neither the view of the producer nor the miner. It was gotten up with the public interest more in mind. But the two short paragraphs the judge quoted show that they were not considering the employment of miners necessarily, nor the coal producers. They say: The problem of protecting the consumer against unreasonable advance in price is simplified in coal mining by the pressure of competitive sources of energy-oil, gas, and water power-and by the alternative offered to the larger consumers of opening mines for their own use. Industrial consumers already supply a fourth of their own requirements from mines which they control. The objection that stabilization protects the inefficient producer loses some of its force in this industry where several thousand marginal producers (commercial mines, not wagon mines) had already been forced out of business before the great depression began. Any mine able to survive the years 1930 to 1932 has demonstrated a considerable efficiency. With deflation of the less-efficient mines so far accomplished, the present time offers a unique opportunity to inaugurate production control. I am representing the commercial side of this question. This indicates that the committee that prepared that report was of the opinion that the public could protect themselves, if we got the price of coal too high, by going to their own mines, industry, and the railroads. generally. That would put a lot of commercial mines out of business. It would transfer a lot of our employees to other industries. There are a lot of industries that own mines that buy some coal. Some of our very largest customers have their own mines and yet they buy a portion of their coal. We believe it is a helpful situation to have commercial mines. Industry uses largely nut and slack coal. We cannot sell nut and slack coal to the householder. If the consumer cannot get from us and start his own mine, we will lose our market for nut and slack coal, and suffer a very serious handicap. Our companies during the winter, since the winter started, have stored approximately 150,000 tons of nut and slack, in order to supply that domestic coal, because we couldn't sell them nut and slack. When we are going to get it out of storage, I don't know. Senator NEELY. Where is that coal now? Mr. FRANCIS. That coal is lying on the ground in Logan and McDowell Counties, right near the mines. It is at a disadvantage of being stored at a point where we don't have handling facilities like we do in the commercial places, and there is danger of spontaneous combustion. Spontaneous combustion is dangerous about a mine where we don't have elevators and machines that will move it rapidly, and it is highly dangerous to store coal at the mine. The report Judge Warrum read showed the committee recognized the dangerous situation with which the commercial mines are confronted. Now, this bill provides that no grade of coal can be sold for less than the average cost of production in the district, less depreciation and depletion. Judge Warrum and Mr. Murray said they thought possibly an amendment could be submitted to cover that, because there has been a good deal of objection, and they thought there was merit in the objections. But I think that situation must be looked at from a different standpoint, a more practical standpoint. If this legislation is passed governing the sale of coal, it should be so elastic as to permit the free and normal moving of coal. I am anxious to move every grade I can at the best price I can. Most of the other producers are. Coal is never sold at a low price because the producer wants to do it, but he is afraid if he does not he may not sell it at all. The different coal fields of this country are confronted with different marketing problems. The different producers within the different fields are also confronted with similar differences in their market problems. Smokeless coals of eastern Pennsylvania are largely sold as mine-run coals. Smokeless coals of southern West Virginia and Virginia are largely sold as prepared and resultant grades of coal. The same relative difference, to a certain degree, exists between the coals of West Virginia and Kentucky on the one hand and those of Ohio on the other. The better grades in the South are sold for domestic and household purposes in competition with oil, gas, anthracite, and coke. The higher quality coals that would more nearly substitute for the highpriced coke and anthracite or oil and gas bring a premium in the market. Medium grade prepared coals go into secondary markets, and the low-grade coals go into the cheapest or lowest priced domestic markets. There is a very great difference in the values of these coals for domestic purposes, and the coals sell on value. On the other hand, the nut and slack coals used for steam purposes, which are about half the product of the South, sell on their value to steam users for the evaporation of water, each pound of coal evaporating a certain number of gallons of water. Their value for this purpose depends upon their ash and sulphur content, the British thermal units per pound of coal, and the heat value of the coal. Steam users have a very large choice of coals for this purpose. They can buy from many districts and their purchases are based upon the value of the coal in their own plants. Depending upon the delivered value and price, industrial consumers will shift their coal supply from one district to another, or from one mine to another, and from coal to some other form of heat and energy supply, like oil, gas, or hydroelectric power. There is a great variation in the value of these coals. For example, there is, today, high volatile nut and slack coal being sold at $1.20 a ton. The purchaser who is paying 50 percent more for the $1.80 coal is, in his opinion, getting 50 percent or more in value in his own plant. Assuming the cost of the coal in this southern high volatile district to be $1.80 a ton, under this bill as written, one producer whose present price is $1.80 could continue to sell his nut and slack coal at $1.80, and his lump, egg, stove, and nut coals at higher prices, and get a very satisfactory profit. On the other hand, a producer having slack that is worth only $1.20 a ton could not sell his nut and slack coal at all and would have to close his mine down and put his labor out of employment. In some cases, the domestic grades of coal, including the lump, egg, and stove, are worth more at the mines that have a low grade of nut and slack, and at other mines, the domestic coals having a high-grade slack are worth very little more than the nut and slack. But if we are to market our product under a system set up by Federal statute, to keep it from being a statute that will confiscate the property of many producers, it will have to be so drawn set up by Federal statute, to keep it from being a statute that will confiscate the property of many producers, it will have to be so drawn as to allow the reasonable elasticity that has been attempted under the codes. Mistakes have been made under the codes in arriving at relative values, but they are generally mistakes of judgment. I Marketing agencies, in arriving at fair prices for various grades of coal, will have to consider many matters of detail. They will have to so price the soft and friable structure coals as to permit them to move in the market with equal freedom as compared with the firm and hard structure coals. Coals having from 65 percent to 80 percent nut and slack coal, unless they are favorably situated in the market from the freight rate standpoint, should be so priced as to protect the production and use of these coals, just as hard, firm structure coals with low quality nut and slack will have to be priced by marketing agencies or code authorities so that their product can also be sold. I would like to read into the record some examples of how cases of this kind might work out in any district. Take a district with a cost of $1.80 a ton for high volatile coal: It is noted, however, that this producer would receive 2 cents less than the average district cost but would still be selling his coal at a profit. Changing this example and substituting $2.50 a ton for lump coal, which might readily be the case, he will receive $1,000 for his lump and $1,880 for the 1,000 tons of his product, which would be $180 over the cost of $80 more than the average district cost. But as the bill is now written, he would not be permitted to sell the 400 tons of nut and slack coal at $1.20 a ton, and if he cold not get $1.80 a ton because it was of low quality and not worth more than $1.20 to the buyer, he would have to close the mine, although it would, under normal market conditions, be a profitable operation. Example B Total cost of producing 1,000 tons of coal at $1.80 a ton. Sales value: 300 tons of lump at $2.50 a ton.... 100 tons of egg at $2 a ton.. 600 tons of nut and slack at $1.80 a ton.. $1,800 750 200 1, 080 2, 030 Total value............ Mine cost at $1.70 a ton Out-of-pocket profit... Out-of-pocket profit, 33 cents per ton. 1,700 300 It will be noted in this example that in this case the producer would receive $230 more than the average district cost and $330 more than his own minimum cost. It will be noted in this case that there were only 300 tons of lump and 100 tons of egg, a total of 400 tons of prepared coal, as compared with 600 tons in example A, but the lump was of greater value in example A. The egg was of less value and the nut and slack was worth 60 cents a ton more than in example A. This coal would come from a soft, friable seam of high-volatile coal. A great deal of the coal mined in West Virginia and Kentucky is of this character. Example C District cost of producing 1,000 tons of coal, at $1.80 per ton....... Sales value: 400 tons of lump, at $2 a ton.. 150 tons of egg, at $2.25 a ton 450 tons of nut and slack, at $1.60 a ton.. Total realization.... Out-of-pocket profit to producer Profit over average district cost.. $1,800. 00 1,750. 00 800.00 337.50 720. 00 1, 857. 50 107.50 57.50 It will be noted, however, that this producer sold 450 tons of nut and slack at 20 cents under the district average, but still made a profit over the district average cost and a profit over its own cost. Out-of-pocket loss to producer.. 1,000 600 450 2, 050 50 250 Indicated profit, based upon district cost of $1,800 Example F (This example illustrates some of the problems confronted by the producers of soft coal where the greater percentage of the output is nut and slack.) |