Coal news and updates

Coal output cuts likely at lower heat value US Powder River Basin mines: BB&T

Low natural gas prices and weak demand are expected to cut US Powder River Basin coal demand by 25 million-30 million st to 390 million st in 2015, with increasing cuts coming from lower heat value mines, BB&T Capital Markets said Tuesday.

Most affected would be PRB 8,400 Btu/lb mines, including the Belle Ayr and Eagle Butte mines owned by financially strapped Alpha Natural Resources, which cannot compete with higher heat value 8,800 coals, BB&T said in an analyst report.

An Alpha bankruptcy -- raised as a possibility by a recent Wall Street Journal article, although the company has not commented on the report -- could have the most impact on Alpha's two PRB 8,400 mines.

"If ANR restructures under Chapter 11 of the bankruptcy code, one would believe production from these two mines would be curtailed significantly," BB&T said.

Coal production at Alpha's Belle Ayr mine dropped 27.9% in the second quarter to 3.7 million st, compared with first-quarter output, according to US Mine Safety and Health Administration data.

Alpha could not be reached to comment on the production cut.

Overall US PRB production, meanwhile, totaled 205.4 million in the first half of the year, down from 211 million st in the same period of 2014, and is running at an annualized rate of 390 million st.

PRB production peaked in 2008 at 508 million st, but has fallen to 430 million-440 million st from 2012-2014, according to MSHA.

Arch Coal and Peabody Energy also have exposure to lower heat value mines, with their Coal Creek, Rawhide and Caballo mines, BB&T said.

Kiewit's Buckskin mine, which produced 15.3 million st in 2014, also is expected to cut its production over time, according to BB&T.

Peabody produced 15.5 million st at the Rawhide mine, which has an average heat content of 8,300 Btu/lb, and produced 8 million st at its Caballo mine in 2014. Those mines produced 7.2 million st and 5.5 million st, respectively, in the first half of 2015, according to MSHA data.

Another PRB 8,400 coal producer, Cloud Peak Energy, has already begun cutting production at Cordero Rojo, which posted H1 output of 10.4 million st, down from 17 million st a year earlier.

Cloud Peak took a $33 million goodwill charge last week to reflect the reduced asset value, BB&T noted.

"They were the first," BB&T said. "Expect more to follow."

source: http://www.platts.com