Coal news and updates

UBS downgrades key coal stocks

Coal stocks faced heavy declines on Wednesday a day after getting a boost on hopes of a recovery after CONSOL Energy lifted its coal production forecast for the year, on strong demand from power companies. Coal Stocks Were Jumping For Multiple Reasons.

The reason behind recent decline was that UBS downgraded Arch Coal Inc, Alpha Natural Resources, Inc. and Walter Energy, Inc. to Sell from Neutral, based on lower met coal price forecasts for the sector due to oversupply issues and the latest Q2 benchmark settlement that was lower than expected. The rating firm sees balance sheets to be stressed and cash burn to increase which could result in a 2016 liquidity crisis.

UBS analyst Kuni Chen said “Our Australian Commodity Team is sharply cutting seaborne met coal forecasts (again). The new price deck for 2014-15 is now $130/mt (was $146) and $130/mt (was $150)…Based on a lower commodity price deck, we are cutting ratings, targets, and estimates for the coal sector. We are downgrading [Arch Coal, Alpha Natural Resources and Walter Energy] to Sell (all previously at Neutral)…Pure-play Walter has the highest met coal leverage in our coverage. Alpha and Arch also have high EPS sensitivity to changes in the met coal price.”

“The cut to our met coal price deck reflects a larger oversupply view despite our model assuming 9 mt of US production cuts this year. In addition, the latest 2Q benchmark settlement of $120/mt was lower than expected and down 16% from $143/mt in 1Q. We think Street estimates are too high and assume a $150-$160/mt met coal price in 2015,” he continued.

“In light of our cuts to EBITDA, net leverage could reach 20-25x for Alpha and Walter this year. Arch’s net leverage may surpass 15x. Cash burn should be highest at Alpha and Walter and we expect managements to take additional action to cut costs and conserve cash. A sustained weak met coal price in the $120-$130/mt range could result in a liquidity crisis for some companies by 2016,” he added.

James River Coal Company tumbled 12.91%, extending declines on news that it filed for protection under chapter 11 of the Bankruptcy Code as the coal provider struggled to reorganize its debt. JRCC’s bankruptcy petition provided signs that it has 10,001 to 25,000 creditors, assets estimated at $1,066,040,000, and liabilities estimated at $818,698,000.

Source: www.marketsemerging.com