Arch Coal Takes Hit from Soft Prices in First Quarter, but Expects Demand to Improve Through End of 2013

Researched by Industrial Info Resources (Sugar Land, Texas)--Arch Coal Incorporated (NYSE:ACI) (St. Louis, Missouri), a leading, diversified coal company, saw a drop in revenues and earnings for first-quarter 2013 as metallurgical and thermal coal shipments were generally weaker and realized prices declined in all operating regions. Arch Coal reported a net loss of $70 million for the quarter, compared with $1.04 billion in first-quarter 2012.

Total revenues stood at $825.5 million, a 20.6% decrease from the same period last year. Sales prices per ton in Arch Coal's Powder River Basin operations were down 8.58% from first-quarter 2012 as pricing dropped for contracted, market-based and export product. Coal from the Powder River Basin made up more of the company's overall volume mix than usual. Weaker prices on metallurgical shipments led to a 14.39% decrease in average sales prices per ton from the Appalachian operations, while weaker export prices led to a 3.37% decrease from the Western Bituminous operations.

Still, Arch Coal executives say the company has aggressively reduced capital spending and contained costs. Capital expenditures for the quarter were reported to be $54.52 million, compared with $93.27 million in first-quarter 2012. For more information, see March 11, 2013, article - Arch Coal Cuts Production Costs to Position Itself for Recovery in Coal Prices.

Industrial Info is tracking about $1.3 billion in active projects involving Arch Coal, including the $400 million construction of the Grafton Leer Underground Metallurgical Coal Mine in Grafton, West Virginia. The project involves building a 3.5 million-ton-per-year underground mining complex and 1,300-ton-per-hour preparation plant. R G Johnson Company Incorporated (Washington, Pennsylvania), Cowin & Company Incorporated (Birmingham, Alabama) and Powell Companies (Johnson City, Tennessee) are serving as contractors.

"During the first quarter, Arch continued to demonstrate strong cost control and capital restraint, which helped offset lighter volumes and realized prices," said John Eaves, the president and chief executive officer of Arch Coal, in a conference call. "Our success in controlling costs has allowed us to lower our full-year cost guidance expectations in several regions. What's more, we've begun to reduce our capital spending guidance for 2013 to ensure that our outflows for the year are in line with gradually recovering markets. While it's no secret that global coal markets have been weak over the last year or so, we are encouraged by the correction that is unfolding."

Arch executives now expect capital expenditures for full-year 2013 to be between $300 million and $330 million, which is $30 million lower than the previous quarter's forecast. With demand rising and production stabilizing in recent months, U.S. coal consumption for electricity generation this calendar year is expected to increase by 50 million tons or more from 2012. As prices for competing fuels, such as natural gas, increase, coal is expected to regain some of its lost share of the energy market. Favorable weather trends also are playing a role in the upbeat outlook.

Executives also said that global metallurgical and thermal coal markets are beginning to stabilize and that the global coal trade will exceed last year's record of 1.2 billion metric tons. Steel production is also expected to improve, with the U.S., Asia and Latin America leading the growth.

"Power demand [for 2013] has been up more than 3% through March; even more importantly, coal consumption is up more than 10%, while coal production was down 10%," Eaves said in the conference call. "These trends are helping to correct the significant stockpile overhang at our producers. If the current pace holds, we would expect coal stockpiles to end the year below 145 million tons. That would be lower than the five-year average nationally, and a level not seen since December 2007. This correction would set the stage for a much more balanced and dynamic domestic thermal market in 2014."

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.