Recovery in thermal coal demand expected

February 13, 2014

Alpha Natural Resources reported a smaller-than-expected quarterly loss as cost-cutting efforts paid off and forecast an improvement in demand for thermal coal used to generate electricity, Reuters reported.

Arch Coal Inc. also said it expected demand for thermal coal to pick up in 2014 thanks in part to severe weather conditions in much of the United States during the winter months. A recent rise in natural gas prices and lower coal inventories have also aided in the recovery which lead to a 6 percent spike in share prices on Feb. 12 for Alpha.

“Overall, the outlook for thermal coal markets is more constructive compared with a few months ago ... (while) metallurgical markets continue to be very challenging,” the company said.

Alpha Natural said it would sell low-grade metallurgical coal in the thermal coal markets, whose prices were above those of metallurgical, or steelmaking, coal.

While thermal coal prices have risen roughly 7 percent since a low in September, metallurgical coal settlement prices have dropped 6 percent in the first quarter from the fourth quarter, Reuters reported.

However, Alpha Natural warned that thermal coal pricing remained challenging relative to production costs. The company, like miners globally, has been reining in spending to cope with weak coal prices for both met and thermal coal.

Alpha Natural on Wednesday cut its 2014 capital spending forecast to $250-$300 million from $250-$350 million. The company widened shipment forecast to 77-90 million from 79-90 million tons.

While the company cut its metallurgical coal shipment forecast, it raised the upper end of its shipment forecast for thermal coal mined from its mines in Virginia, West Virginia, Kentucky, Pennsylvania.

However, Alpha Natural warned price increases for thermal coal were limited by the availability of coal, primarily from the Illinois basin and Powder River basin in these regions.

The company, which also operates in Wyoming, sold 20.6 million tons of coal overall in the fourth quarter, lower than the 25.9 million tons a year earlier. Average coal prices slid 10 percent in the quarter.

Net loss more than doubled to $359 million, or $1.62 per share in the quarter ended Dec. 31.

Excluding items, the company reported a loss of 52 cents per share, lower than analysts' estimate of 62 cents per share, according to Thomson Reuters I/B/E/S.

The results were partly helped by lower costs, which fell to $1.3 billion from $1.6 billion. Quarterly revenue slid 30 percent to $1.1 billion.


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