I'm still a long term bull as I think the US dollar goes back to it's multi year trajectory (down) in the future, helping US multinationals (East Coast coal producers for example) and the same foreign markets will continue in their needs. Ironically if the US imposes stricter regulation on coal it could cause some impairment to production which should be beneficial to pricing. Also a lot of people simply don't want their kids to grow up to be coal miners so labor shortage seem to be quite striking in the industry.
But for now, until people can see a global economic pickup within 6-9 months, these global growth/commodity names can only be trading vehicles because institutions need to come in and provide a sustained bid. Prices for coal actually held up far longer than oil or natural gas but in the past few weeks as the credit crisis truly stalled everything, the spot pricing has been hit hard. Or it could be that hedge funds are liquidating what they can (see gold which should of had the move of a lifetime during this panic) - it's hard to tell how much of the price of anything hedge funds are involved in is liquididation and how much is true supply/demand characteristics.
Arch Coal (ACI) reported Monday
- Strong coal demand fueled Arch Coal's profits in the third quarter, but as prices have started to soften the miner is planning to shutter some operations and it slashed its 2008 earnings guidance on Monday. Arch slashed its full-year earnings estimate to a range of $2.30 to $2.55 per share, down from $2.50 to $2.85. Analysts had expected $2.68.
- Although Arch Coal’s third-quarter profit tripled on strong demand, the miner thinks turmoil in the global economy will weigh on demand for the rest of the year.
- Natixis Bleichroeder analyst Jeremy Sussman said that Arch Coal (nyse: ACI - news - people ) has already signed contracts for about 35 million tons of coal for 2009 delivery at $18 a ton, above the $16 a ton many had forecast – a slight positive.
- Sussman said that part of the problem is that the coal producers in the Powder River Basin, a region in southeast Montana and northeast Wyoming, didn’t see the run-up in coal prices that producers enjoyed in the East. Coal in the East is worth more because it has a higher heat content. Additionally, East Coast producers are also able to export coal more easily to Europe.
- "Despite the significant decline in coal equity value since July, underlying coal supply-demand fundamentals remain positive and suggest to us the correction has been overdone," Steven Leer said. "We do think the anxiety of the global slowdown is creating or causing our customers to be cautious,"
- Each ton Arch sold fetched on average $20.38, up from $16.02 a year ago but down from $21.04 during the second quarter. The company's operating margin per ton averaged $3.73, roughly double from $1.87 average a year ago.
- Arch also estimates that 15.5 gigawatts of new coal-fueled capacity are under construction in the U.S. and expected to come online within the next four years, meaning more than 55 million tons of new coal demand annually.
- Coal mining company Patriot Coal Corp. said Tuesday that it swung to a profit in the third quarter because of accounting adjustments stemming from its acquisition of a coal company during the quarter. The company again expressed disappointment in production from its Appalachian mines during the quarter.
- Patriot, the third largest coal producer in the eastern U.S., said it earned $73 million, or $1.01 per share, for the quarter ended Sept. 30 compared with a loss of $39.5 million a year ago. Revenue rose 67 percent to $489.6 million in the quarter from $293.3 million a year ago. Patriot said it made $122 million in the quarter in purchase price accounting adjustments stemming from its acquisition of Magnum Coal Co. The adjustments reflect what Patriot said was Magnum's below-market sales and purchase contracts.
- Production rose by 2.2 million tons to 8.2 million tons in the quarter, but still below the company's earlier forecasts. Earlier this month, Patriot slashed its production outlook by 1.4 million tons because of what the company said are common problems throughout the central Appalachian region, including a shortage of skilled workers, difficult geologic conditions, downtime from safety inspections and a delay in getting a permit for the Hobet mine.
- In the last quarter, global financial markets have obviously become increasingly challenging. As a result, banks, funds and other financial institutions have been forced to liquidate their energy positions, including financial coal contracts, in order to generate cash. This has contributed to the approximately 25 percent decrease in over-the-counter traded prices for Central Appalachian thermal coal over the past three months. The API2, a traded financial contract for thermal coal delivered into northern Europe, decreased 40 percent as traders liquidated their positions. The Company believes the majority of sellers in the OTC coal market have been traders and financial entities, while, importantly, the majority of buyers have been coal producers and consumers.
- Central Appalachian coal inventories of electric utilities are near five-year lows and down considerably from this time last year.
- Globally, countries like South Africa, Vietnam, Russia and China are decreasing their exports of coal in order to supply domestic demand. Finally, tight credit markets will significantly increase the cost of and add constraints to borrowing money for development of new coal capacity in most countries, including the U.S. and Australia.
- Walter Industries reported net income for the third quarter ended Sept. 30 more than doubled to $55 million, or 97 cents per share, compared to $24.4 million, or 46 cents per share, in the year-ago period. Earnings would have been $1.27 a share, but unusual items related to the financing and homebuilding businesses reduced that amount by 30 cents a share. Those businesses are slated to be separated from Walter Industries early next year.
- "Despite recent cutbacks in global steel capacity, we remain on track for record earnings in 2008 and 2009 as our premium, hard coking coal remains in high demand," Chairman Michael T. Tokarz said in a statement.
- Results reflect average metallurgical coal selling prices of $161.92 per short ton, an increase of 81.5 percent from the prior year, and includes new contract pricing on 1.1 million tons, as well as deliveries of 300,000 tons at rollover pricing from the prior contract year.
- Alpha earned $69.9 million, or 97 cents per diluted share, in the period. Alpha earned $8.9 million, or 14 cents per share, in the same period last year. Coal revenue climbed to $623 million, from $440.9 million a year ago, on the strength of metallurgical-grade coal prices.
- Alpha offered little reassurance about the remainder of 2008 or next year, saying it is not reaffirming earnings, production and revenue guidance issued last July. "Issuing guidance at this time can't be done with any comfortable level of assurance and so it's just not prudent to do so," Chief Executive Mike Quillen told analysts during a conference call.
- Alpha warned that labor shortages and government regulatory activities are hurting production at some underground mines and some costs are rising more than expected, including the price of coal purchased for resale.
- Alpha's coal sales dipped slightly to 7.3 million tons in the quarter, compared with 7.6 million. However, prices that have more than doubled from a year ago boosted Alpha's profit margin per ton to $21.43 in the third quarter, from $9.95 per ton a year ago.
- The company said it realized an average of $130 a ton on metallurgical coal sales during the quarter and $112.90 through the first nine months of 2008. Average prices are on track to be far higher next year. For 2009, Alpha has signed contracts for 5.4 million tons of metallurgical coal at an average of $194 a ton. Another 7 million tons of 2009 met-coal production remains unsold and unpriced, Alpha said. Recent price and production cutbacks by steel producers have left the market for that coal uncertain.
- All of its planned thermal coal production is locked up for 2009. Approximately 62% of planned thermal production in 2010 -- or approximately nine million tons -- was uncommitted and unpriced as of October 13.
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