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Released March 11, 2013 | DENVER, COLORADO
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Arch Coal Incorporated (NYSE:ACI) (St. Louis, Missouri) is positioning itself to benefit from a projected sharp increase in global demand for steam and metallurgical coal, Gene DiClaudio, president of Arch's Western Bituminous Group LLC (Grand Junction, Colorado), told attendees at the annual meeting of the Colorado Mining Association (CMA) (Denver, Colorado).
For more on Arch's outlook for capital spending in 2013 and its financial performance for 2012, see February 6, 2013, article - Arch Coal Sees Rocky Conditions in 2012, but Expects Market Rebound in 2013 with Less Spending.
DiClaudio said Arch expects about 30% of U.S. coal-fired generation has been or will be retired in the next few years, but coal consumption will fall only about 10%. He estimated low-cost gas and environmental regulation has reduced annual coal burn by 110 million tons per year. But he added as much as half of that could be regained if natural prices exceeded $3 per million British thermal units (MMBtu) on a sustained basis.
"Outside the U.S., nations are increasingly turning to coal for their electricity needs," DiClaudio told the late-February CMA conference. "While the U.S. is only building a small handful of coal-fired generators, China will bring on about 110 gigawatts (GW) of new coal-fired generation by 2017, and India is scheduled to add another 117 GW. What we're seeing overseas is a very different story from what's going on in the U.S."
Overseas steam coal markets are growing, not shrinking, he said, citing a recent study from industry consultants Wood Mackenzie (Edinburgh, Scotland) that coal would supplant oil as the world's leading energy source by 2020.
To serve growing overseas coal demand, U.S. coal export terminal capacity is projected to more than double over the next five years, he observed. Port expansions will be most significant on the East Coast, with a total of 87 million tons of capacity being developed. The Gulf Coast follows with an estimated 63 million tons of annual export capacity on the drawing board. The West Coast has plans to add an estimated 47 million tons of export capacity, while the Southeastern U.S. has plans to add about 28 million tons of export capacity.
Arch's western operations are divided into two branches. The Western Bituminous Region, overseen by DiClaudio, includes four coal mines in Utah and Colorado: Dugout Canyon, Skyline, Sufco and West Elk. Arch also operates three coal mines in Wyoming and Montana--Black Thunder, Coal Creek and Otter Creek Reserves--that constitute its operations in the Powder River Basin. DiClaudio's speech at the CMA conference focused on the four mines in Utah and Colorado.
The four mines overseen by DiClaudio can produce about 20 million tons of coal per year, but actual production slipped from approximately 18 million tons in 2011 to 15 million tons in 2012, he said. Production is expected to hold steady at about 15 million tons this year, he forecast. Unfavorable market conditions forced production cutbacks there in recent years, but Arch could add up to 6 million tons of new annual production if market conditions warrant it, the Arch executive told attendees.
While Arch's Western Bituminous Group waits for coal market conditions to improve, it has been working hard to cut operating costs. Although coal production at the group's four mines in Colorado and Utah fell from about 20 million tons in 2008 to 15 million in 2012, better efficiencies at those mines knocked between $1.50 and $2 per ton off production costs. Because it has trimmed costs, DiClaudio said the Western Bituminous Group is well-situated for expanded use of compliance coal in the U.S., as well as exports to Asia. Expanded production volumes would generate higher margins, he added.
DiClaudio told attendees that Arch's coal exports rose from 7 million tons in 2011 to 13 million tons in 2012, and he projected an increase to 30 million tons by 2020. He did not specify how those export volumes broke down between steam and met coal.
But he did note that rising global demand for steel is expected to continue driving increased demand for met coal. Industry experts predict rapid industrialization in China and India will push global steel demand to 2 billion tonnes by 2020, a 43% increase over 2012 production. That growth will drive a 55% increase in demand for met coal to 1.4 billion tonnes in 2020 from 800 million tonnes in 2010, DiClaudio predicted.
"These trends are why Arch has moved into met coal in a big way," DiClaudio told the CMA attendees. "By 2015, we expect to significantly expand our exports of metallurgical coal to about 15 million tons per year, from about 8 million tons in 2010. We call that the '15 by 15' plan."
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.
For more on Arch's outlook for capital spending in 2013 and its financial performance for 2012, see February 6, 2013, article - Arch Coal Sees Rocky Conditions in 2012, but Expects Market Rebound in 2013 with Less Spending.
DiClaudio said Arch expects about 30% of U.S. coal-fired generation has been or will be retired in the next few years, but coal consumption will fall only about 10%. He estimated low-cost gas and environmental regulation has reduced annual coal burn by 110 million tons per year. But he added as much as half of that could be regained if natural prices exceeded $3 per million British thermal units (MMBtu) on a sustained basis.
"Outside the U.S., nations are increasingly turning to coal for their electricity needs," DiClaudio told the late-February CMA conference. "While the U.S. is only building a small handful of coal-fired generators, China will bring on about 110 gigawatts (GW) of new coal-fired generation by 2017, and India is scheduled to add another 117 GW. What we're seeing overseas is a very different story from what's going on in the U.S."
Overseas steam coal markets are growing, not shrinking, he said, citing a recent study from industry consultants Wood Mackenzie (Edinburgh, Scotland) that coal would supplant oil as the world's leading energy source by 2020.
To serve growing overseas coal demand, U.S. coal export terminal capacity is projected to more than double over the next five years, he observed. Port expansions will be most significant on the East Coast, with a total of 87 million tons of capacity being developed. The Gulf Coast follows with an estimated 63 million tons of annual export capacity on the drawing board. The West Coast has plans to add an estimated 47 million tons of export capacity, while the Southeastern U.S. has plans to add about 28 million tons of export capacity.
Arch's western operations are divided into two branches. The Western Bituminous Region, overseen by DiClaudio, includes four coal mines in Utah and Colorado: Dugout Canyon, Skyline, Sufco and West Elk. Arch also operates three coal mines in Wyoming and Montana--Black Thunder, Coal Creek and Otter Creek Reserves--that constitute its operations in the Powder River Basin. DiClaudio's speech at the CMA conference focused on the four mines in Utah and Colorado.
The four mines overseen by DiClaudio can produce about 20 million tons of coal per year, but actual production slipped from approximately 18 million tons in 2011 to 15 million tons in 2012, he said. Production is expected to hold steady at about 15 million tons this year, he forecast. Unfavorable market conditions forced production cutbacks there in recent years, but Arch could add up to 6 million tons of new annual production if market conditions warrant it, the Arch executive told attendees.
While Arch's Western Bituminous Group waits for coal market conditions to improve, it has been working hard to cut operating costs. Although coal production at the group's four mines in Colorado and Utah fell from about 20 million tons in 2008 to 15 million in 2012, better efficiencies at those mines knocked between $1.50 and $2 per ton off production costs. Because it has trimmed costs, DiClaudio said the Western Bituminous Group is well-situated for expanded use of compliance coal in the U.S., as well as exports to Asia. Expanded production volumes would generate higher margins, he added.
DiClaudio told attendees that Arch's coal exports rose from 7 million tons in 2011 to 13 million tons in 2012, and he projected an increase to 30 million tons by 2020. He did not specify how those export volumes broke down between steam and met coal.
But he did note that rising global demand for steel is expected to continue driving increased demand for met coal. Industry experts predict rapid industrialization in China and India will push global steel demand to 2 billion tonnes by 2020, a 43% increase over 2012 production. That growth will drive a 55% increase in demand for met coal to 1.4 billion tonnes in 2020 from 800 million tonnes in 2010, DiClaudio predicted.
"These trends are why Arch has moved into met coal in a big way," DiClaudio told the CMA attendees. "By 2015, we expect to significantly expand our exports of metallurgical coal to about 15 million tons per year, from about 8 million tons in 2010. We call that the '15 by 15' plan."
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.
