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Released February 06, 2013 | SUGAR LAND
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Researched by Industrial Info Resources (Sugar Land, Texas)--Arch Coal Incorporated (NYSE:ACI) (St. Louis, Missouri), a leading, diversified coal company, survived weak demand and reduced prices on domestic and exported coal in 2012, despite record annual exports. Still, company executives expect to see a coal market recovery in 2013. Arch Coal reported a net loss of $295.42 million for the quarter, compared with net income of $70.88 million in fourth-quarter 2011. The full year saw a net loss of $683.96 million, compared with net income of $141.68 million in 2011.
Total revenues stood at $968.23 million for the quarter, a 21.2% decrease from the same period last year, and $4.16 billion for the year, a 2.96% decrease from 2011. Government data shows U.S. coal production fell by almost 80 million tons during the year, with the decline at its steepest in the fourth quarter. According to the U.S. Energy Information Administration, wholesale (spot) coal prices across all basins fell during the first half of 2012 before stabilizing in the latter half of the year. Arch Coal reported lower prices on thermal coal sales and metallurgical sales, while its total amount sold during the year fell to 140.7 million tons, from 155.3 million in 2011. During 2012, Arch Coal closed mines and cut production in response to the weak markets and emphasized cost controls at active facilities.
Arch Coal enhanced its presence in the seaborne coal trade, with its exports hitting 3 million tons for the fourth quarter and a record 13.6 million tons for the year. However, prices on export coal also declined. The company has reduced production levels in the Powder River Basin and Appalachia, where higher-cost production at the Cumberland River and Vindex mining facilities was idled. The Western Bituminous Region, on the other hand, boasted a record cash margin performance in the fourth quarter, with the longwall at the Skyline complex in Utah resuming production and sales prices showing a quarterly increase.
Capital expenditures for 2012 were lower than expected at $395 million, compared with $540 million in 2011. The decline in benchmark metallurgical prices was a major factor behind a non-cash impairment charge of $231 million in the fourth quarter related to goodwill and intangible assets.
Industrial Info is tracking $1.28 billion in projects involving Arch Coal, including the planned, $300 million construction of the Lost Prairie Underground Thermal Coal Mine in Pinckneyville, Illinois. The long-term project involves using 440 acres at an 848-acre site to construct an 800,000-ton-per-year underground room and pillar coal mine, ramping up production to 3.5 million tons per year over a five-year period.
"Global benchmark metallurgical prices declined 50% since their peak a year and a half ago, while U.S. thermal coal consumption declined to levels we haven't seen since the mid-90s," said John Eaves, the president and chief executive officer of Arch Coal, in a conference call. "Muted economic activity, unseasonably warm weather, and low natural gas prices all converged to dampen coal demand, causing coal stockpiles to grow to near-record levels in May of last year.
"However, we're encouraged to see stabilization in the back half of 2012. Based upon these dynamics, we believe we're moving off the bottom as we head into 2013. Metallurgical coal markets are beginning to show some signs of life; inquiries that were non-existent six months ago are emerging; utilization of U.S. steel mills is improving; and China's economy seems to be picking up. On the supply side, production cuts and constraints are beginning to take hold, and should start to have a greater impact as the year progresses."
Arch Coal reported fewer tons sold in all its regions, while the Western Bituminous Region was the only one to report stronger operating margins:
"Prices for natural gas are high enough to give Western coal some economic advantage on the dispatch curve," Eaves said in the conference call. "At the same time, we believe natural gas prices are unsustainably low today, as companies cannot make sufficient returns to justify continued investment, as evidenced by the rig count decline. Over time, we expect market forces to move gas prices higher, which should further bolster coal's competitiveness in the power sector."
Arch Coal anticipates an overall reduction in capital expenditures in 2013, with the full-year total at or below $350 million, with about $100 million to be spent on the ongoing Leer Underground Metallurgical Coal Mine project in Grafton, West Virginia, which, when completed as scheduled in the fourth quarter, is expected to have a capacity of 3 million tons per year.
"While our sales profile in 2013 will likely be weighed down by lower realized prices on export sales, we continue to pursue key contracts to fulfill our longer-term strategic goal of increasing our stake in the seaborne coal trade," said Paul Lang, the chief operating officer of Arch Coal, in the conference call. "South Korea is the single largest country that we did business with on the international front in 2012. We believe this relationship will continue to grow as that country builds out a coal generation fleet that is designed to burn sub-bituminous coal. With its consistent quality, high reliability, and expansive reserve base, the Powder River Basin will increasingly play a larger role in Korea, as well as the broader Asia-Pacific region."
For more information, visit Industrial Info's North American Metals and Minerals Project Database.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
Total revenues stood at $968.23 million for the quarter, a 21.2% decrease from the same period last year, and $4.16 billion for the year, a 2.96% decrease from 2011. Government data shows U.S. coal production fell by almost 80 million tons during the year, with the decline at its steepest in the fourth quarter. According to the U.S. Energy Information Administration, wholesale (spot) coal prices across all basins fell during the first half of 2012 before stabilizing in the latter half of the year. Arch Coal reported lower prices on thermal coal sales and metallurgical sales, while its total amount sold during the year fell to 140.7 million tons, from 155.3 million in 2011. During 2012, Arch Coal closed mines and cut production in response to the weak markets and emphasized cost controls at active facilities.
Arch Coal enhanced its presence in the seaborne coal trade, with its exports hitting 3 million tons for the fourth quarter and a record 13.6 million tons for the year. However, prices on export coal also declined. The company has reduced production levels in the Powder River Basin and Appalachia, where higher-cost production at the Cumberland River and Vindex mining facilities was idled. The Western Bituminous Region, on the other hand, boasted a record cash margin performance in the fourth quarter, with the longwall at the Skyline complex in Utah resuming production and sales prices showing a quarterly increase.
Capital expenditures for 2012 were lower than expected at $395 million, compared with $540 million in 2011. The decline in benchmark metallurgical prices was a major factor behind a non-cash impairment charge of $231 million in the fourth quarter related to goodwill and intangible assets.
Industrial Info is tracking $1.28 billion in projects involving Arch Coal, including the planned, $300 million construction of the Lost Prairie Underground Thermal Coal Mine in Pinckneyville, Illinois. The long-term project involves using 440 acres at an 848-acre site to construct an 800,000-ton-per-year underground room and pillar coal mine, ramping up production to 3.5 million tons per year over a five-year period.
"Global benchmark metallurgical prices declined 50% since their peak a year and a half ago, while U.S. thermal coal consumption declined to levels we haven't seen since the mid-90s," said John Eaves, the president and chief executive officer of Arch Coal, in a conference call. "Muted economic activity, unseasonably warm weather, and low natural gas prices all converged to dampen coal demand, causing coal stockpiles to grow to near-record levels in May of last year.
"However, we're encouraged to see stabilization in the back half of 2012. Based upon these dynamics, we believe we're moving off the bottom as we head into 2013. Metallurgical coal markets are beginning to show some signs of life; inquiries that were non-existent six months ago are emerging; utilization of U.S. steel mills is improving; and China's economy seems to be picking up. On the supply side, production cuts and constraints are beginning to take hold, and should start to have a greater impact as the year progresses."
Arch Coal reported fewer tons sold in all its regions, while the Western Bituminous Region was the only one to report stronger operating margins:
- The Powder River Basin operations reported sales of 104.4 million tons, an 11.38% decrease from 2011, and an operating margin of $0.82 per ton, a 50.9% decrease.
- The Appalachian operations reported sales of 18.6 million tons, a 3.63% decrease from last year, and an operating margin of $0.97 per ton, compared with $13.15 in 2011.
- The Western Bituminous Region operations reported sales of 15.6 million tons, an 8.24% decrease from last year, and an operating margin of $8.87 per ton, a 27.63% increase.
"Prices for natural gas are high enough to give Western coal some economic advantage on the dispatch curve," Eaves said in the conference call. "At the same time, we believe natural gas prices are unsustainably low today, as companies cannot make sufficient returns to justify continued investment, as evidenced by the rig count decline. Over time, we expect market forces to move gas prices higher, which should further bolster coal's competitiveness in the power sector."
Arch Coal anticipates an overall reduction in capital expenditures in 2013, with the full-year total at or below $350 million, with about $100 million to be spent on the ongoing Leer Underground Metallurgical Coal Mine project in Grafton, West Virginia, which, when completed as scheduled in the fourth quarter, is expected to have a capacity of 3 million tons per year.
"While our sales profile in 2013 will likely be weighed down by lower realized prices on export sales, we continue to pursue key contracts to fulfill our longer-term strategic goal of increasing our stake in the seaborne coal trade," said Paul Lang, the chief operating officer of Arch Coal, in the conference call. "South Korea is the single largest country that we did business with on the international front in 2012. We believe this relationship will continue to grow as that country builds out a coal generation fleet that is designed to burn sub-bituminous coal. With its consistent quality, high reliability, and expansive reserve base, the Powder River Basin will increasingly play a larger role in Korea, as well as the broader Asia-Pacific region."
For more information, visit Industrial Info's North American Metals and Minerals Project Database.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
