Arch Coal Ready for Opportunities in Domestic and Seaborne Markets

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--"Cautiously optimistic" was the keynote for Arch Coal Incorporated's (NYSE:ACI) executives when they were responding to questions from industry analysts after the presentation of the company's second quarter results. Following better results than had been expected, albeit reporting a net loss of $436 million, the company's stock has received a significant boost from the market.

With the prospect of exporting 7.5 million tons of metallurgical coal in 2012 and 12 million tons in 2013, a plank in Arch's strategy is to develop the seaborne trade, which could amount to 280 million tons of coal annually for U.S. exporters before the end of the decade.

While China's growth and development of its urban population is a continuing driver for the global coal market, Arch is also looking to continue to develop Atlantic markets while companies (from other major coal exporting countries) look east for increased volumes.

In response to questions on below-capacity production, Arch executives responded that they did not wish to force product onto the market when it could be withheld for profitable future opportunities. The executives are taking optional positions in the company's market scenario planning, which is backed by a successful program of cost cutting and containment and increases in operational efficiency. Executives are ready for better times, which are already in prospect.

The low price of natural gas, which has recently caused power fuel feeds from coal, has already shown signs of leveling up, which could open prospects in the domestic U.S. market for thermal coal supplies.

In the current market climate, Arch expects capital expenditures to fall in the $410 million to $430 million range for 2012. Arch is looking for further reductions on capital expenditures with initiatives such as the redeployment of idle equipment into other active operations, which could reduce expenditures by $30 million to $40 million.

Arch has shut down five mining operations in Appalachia, including high-cost thermal mines. Having higher margin metallurgical coal assets as well as maintaining low-cost thermal operations that can profitably serve both domestic and export coal markets are being favored, said John W. Eaves, president and CEO. At the same time, Arch continues to work on the development of the high-quality, low-cost Leer metallurgical coal mine in Appalachia--where the long wall section is scheduled to start operation in mid-2013.

During the second quarter of 2012, the Appalachian operations closed down were: the East Kentucky complex, the Eastern operation, the Knott County complex, Hazard's Flint Ridge and the Patriot surface complex, which has entered the reclamation phase.

Judging from the responses given to questions on future market strategy, executives from Arch are ready with plans for action on opportunities they feel are approaching. The sales force has been scouting in both domestic and international markets. With debt restructured, rationalized production operations and a diverse mine portfolio, they feel they have their fundamentals right, and appear to see markets coming towards them in the coming twelve months.

For related information, see July 20, 2012, article -- U.S. Coal Majors Invest in Coal Export Network as Overseas Growth Markets Beckon.

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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.