Arch Cuts Steelmaking Coal Output While Seeing Thermal Gains

Apr 22, 2014 4:18 pm ET

(Updates with closing share price in last paragraph.)

April 22 (Bloomberg) -- Arch Coal Inc., a U.S. producer of the commodity, cut its 2014 metallurgical coal production forecast by about 1 million tons while saying that domestic demand for the flammable rock as an energy source is improving.

Arch will now ship 6.3 million to 7.3 million tons of metallurgical coal this year, the St. Louis-based company said today in a statement. Market conditions for the steelmaking ingredient will remain “soft” in 2014, it said.

U.S. metallurgical coal exports will fall to “low triple digits” this year, Chief Executive Officer John Eaves said on a conference call. U.S. producers shipped about 118 million tons to overseas customers last year, according to the Energy Information Administration. Arch shares slumped the most in a year and its bonds also fell.

The company is among coal producers struggling amid an oversupply of metallurgical coal after a slowdown in China, the world’s biggest steelmaker, and an increase in Australian output. Walter Energy Inc., another U.S. producer, said April 15 it will idle its Canadian mines after the benchmark price for the commodity fell to a six-year low.

At the same time, the outlook for thermal coal in the U.S. has brightened following an increase in the price of natural gas, which competes as source of electricity.

“We are seeing a strengthening domestic thermal market in 2014, supported by improved power demand, depleting customer coal stockpiles, higher natural gas prices and low natural gas storage levels that will need to be rebuilt,” Arch Chief Executive Officer John W. Eaves said in the statement.

Wider Loss

Arch lowered its forecast average cash production cost for 2014 to $63 to $66 a ton, helped by the start up in the first quarter of its Leer metallurgical coal mine in West Virginia. Cash costs in the first three months of the year in the Appalachia region averaged $65.48 a ton.

Arch’s first-quarter adjusted net loss widened to 60 cents a share from 34 cents a year earlier, missing the 43-cent average of 21 analysts’ estimates compiled by Bloomberg. Sales were 0.2 percent lower at $736 million. The company said it’s cutting 2014 capital spending to $180 million to $190 million 2014.

Arch’s shares fell 8.5 percent to $4.55 in New York, the biggest drop since April last year. The company’s $1 billion of 7 percent unsecured notes fell 1.375 cents to 77.625 cents on the dollar to yield 13.12 percent at 3:07 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

--With assistance from Matt Robinson in New York.