Arch Coal's Optimism for 2017 Reflects Coal Industry's Upbeat Views on Trump, Market Prices

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Researched by Industrial Info Resources (Sugar Land, Texas)--Conditions may still be cloudy for the coal industry, but executives at Arch Coal Incorporated (NYSE:ARCH) (St. Louis, Missouri) have an upbeat outlook for the coming year, citing recent growth in metallurgical prices and the election of President Donald Trump, who the industry views as an ally. They also expect the market will rebalance following last year's "undersupplied conditions," with prices stabilizing. Industrial Info is tracking $15.59 billion in active coal-related mining projects in North America.

"The new administration should prove to be positive for Arch's metallurgical and thermal franchises," the company said in a quarterly earnings press release. "Arch anticipates that the new administration will constructively address the regulatory burden that has pressured the industry in recent years, resulting in stabilization in domestic thermal coal demand in the intermediate term. Further, Arch anticipates a sharp focus on maintaining a competitive domestic steel sector."

The optimism is reinforced--to a certain degree--by recent findings from the U.S. Energy Information Administration (EIA), which expects coal to regain some share of the domestic electricity-generation mix in 2017, and for coal production to increase slightly. However, the EIA notes that 2016's coal production was at its lowest level since 1978, and that much of the gain will come from an expected increase in natural gas prices. But natural gas would have to nearly double in price, to $6 or $7, for coal to have a shot at regaining its former position in the U.S. energy mix.

Arch's full-year capital expenditures are expected to be between $52 million and $60 million. Arch has narrowed its sales targets for 2017 at between 7.2 million and 7.8 million tons of metallurgical coal, and between 88 million and 96 million tons of thermal coal; executives said the company is 75% committed on coking coal sales for the full year, and nearly 85% committed on thermal coal sales. Also to the company's benefit, executives expect metallurgical prices to be much stronger than what prevailed during first half of 2016.

"We anticipate improving conditions in U.S. thermal markets, particularly later in the year," said John W. Eaves, the chief executive officer of Arch, in a quarterly earnings press release. "Given the highly competitive cost structures of our metallurgical, Powder River Basin and complementary thermal operations, we believe we are advantageously positioned to capitalize on the still-strong metallurgical markets and continuing recovery in U.S. thermal markets."

A solid growth in demand for high-quality, imported coking coal from India is among the factors that fuels optimism among Arch executives for the seaborne market.

Because of the slow (at best) market conditions that have hindered the coal-mining industry for the past few years, it has become difficult for mining companies to justify the expenses involved in constructing new facilities. Consequently, almost $5.5 billion in active U.S. coal-mining projects remain mired in the planning phases, with some having pushed back their kickoff dates by more than five years.

The few under construction are among the relatively less expensive, such as Knight Hawk Coal LLC's (Percy Township, Illinois) $100 million American Eagle Coal Mine in Pinckneyville, Illinois, and Robindale Energy Services Incorporated's (Millersburg, Pennsylvania) $50 million Maple Springs Coal Mine in Hollsopple, Pennsylvania. The American Eagle mine is expected to extend the life of Knight Hawk's nearby Prairie Eagle Mine by adding 100 million tons, for a total output of 2.5 million tons per year, while the 500,000-ton-per-year Maple Springs mine is expected to produce coal for up to 20 years. For more information, including current schedules and contact information, see Industrial Info's project reports on the American Eagle and Maple Springs mines.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, 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. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.