Coal news and updates

Will Cost Cuts See Arch Coal (ACI) Through the Downturn?

Arch Coal Inc.is striving to cut costs to save its bottom line in this challenging coal environment. Arch Coal suspended its annual dividend to preserve financial flexibility. However, the proposed Environmental Protection Agency (EPA) carbon plan, if implemented, will lower the usage of coal in electricity generation.

Arch Coal, a Zacks Rank #3 (Hold) stock, incurred an adjusted loss of 54 cents per share, wider than the Zacks Consensus Estimate of a loss of 48 cents but narrower than the prior-year loss of 60 cents per share. Despite registering a higher sales volume, the lower realized price per ton of coal sold hurt its top line.

Currently, weak coal prices and a supply glut in the global coal market have forced the company to suspend its quarterly dividend to preserve its financial flexibility. The company has also taken measures to lower costs to withstand the difficult coal fundamentals. In 2014, the company brought online its Leer mine which is not only helping in cost reduction but also producing a superior quality of coal.

Arch Coal expects U.S. coal consumption in 2015 to decline by nearly 80 million tons from the prior year due to increasing competition from natural gas. In addition, U.S. coal exports are also expected to fall below 90 million tons in 2015 due to softness in the key global markets.

Arch Coal has operations in all major coal producing regions of the U.S. Its presence in both eastern and western parts of the country allows it to ship and supply coal to a wide range of customers. The company’s focus on high-margin metallurgical coal might help, as a World Steel Association report projects an increase in global steel usage by 0.5% in 2015 to 1,544 Mt and 1.4% in 2016 to 1,565 Mt. This will likely kindle demand for met coal.

Apart from dealing with the softness in the global coal market, Arch Coal will have to withstand competitive pressure from other coal producers like Alliance Resource Partner, Alpha Natural Resources, Inc. and Peabody Energy.

source: http://www.zacks.com