Coal news and updates

Peabody says US coal demand likely to drop by 100 million st in 2015

The tough coal environment affected Peabody Energy's third quarter sales volumes and revenues, but the company said Tuesday it has made aggressive cost cutting efforts and is considering asset sales to help it ride out the current low-price environment.

The St. Louis-based coal producer said in an earnings call it has roughly $1.8 billion in liquidity, including $334 million in cash, but "is currently advancing multiple asset sale processes for certain operating and non-mining assets," CEO Glenn Kellow said.

In follow-up questioning from analysts, Kellow would not identify specific properties, but said "we continue to see buyer interest for the right assets in the right locations."

The company is also planning to reduce its capital spending to $140 million-$150 million for the year -- down roughly 25% from last year -- but said it believes the amount is sustainable. Kellow noted that the company estimate the top global coal producers have reduced capital spending by 70% since 2012.

"Longer term, supply reductions are underpinned by the sizable withdrawal of capital investment within the coal industry," said Kellow. "We believe this limited capital investment is insufficient to sustain current production, and coal prices will need to rise well above levels we see today to incentivize new investment, and over time, we expect a gradual reduction in supply as well as increased coal demand to lead to improved fundamentals."

Kellow also said he expects US thermal coal demand to decline by 100 million st this year due to lower natural gas prices, and that 2016 demand will likely be below 2015 levels.

In the US, the company reported a third-quarter sales volume of 58.4 million st, down from 62.5 million st, or 6.6%, from the year-ago quarter. By region, tons sold in Q3 totaled 35.5 million st in the Powder River Basin compared with the same amount in the year-ago quarter; 5.5 million st in the Illinois Basin, compared with 6.5 million st last year; and 4.7 million st at its Western US mines, down from 6.2 million st last year.

Volume declines in the Illinois Basin were attributed to low natural gas prices, while volume declines in the West were due to a longwall move and less demand for export coal from its Twentymile mine in Colorado.

Revenues from its US mining operations totaled $901.7 million, down from $1.024 billion, or 11.9%, in the year-ago quarter.

Revenues per ton by basin in the third quarter totaled $13.42/st in the PRB, up from $13.30/st in the year-ago quarter; $45.79/st in the Illinois Basin, down from $47.88/st last year; and $37.67/st at its Western US mines, down from $38.55/st last year.

Operating costs per ton by basin in the third quarter totaled $10.03/st in the PRB, down from $10.07/st last year; $32.51/st in the Illinois Basin, down from $34.56/st a year ago; and $27.98/st at its mines in the Western US, up from $25.53/st last year.

The company also reported hedges during the third quarter lost nearly $117 million compared with profits of $6.8 in the year-ago quarter. The hedges were mostly currency and fuel-related.

For the quarter, the company reported $1.42 billion in revenues compared with $1.72 billion in the year-ago period, but reported a loss of $301.9 million compared with a loss of $149 million last year.

source: http://www.platts.com