U.S. Coal Production, Industry Profits Rise in Third Quarter
Following years of eroding demand, declining prices and a harrowing string of bankruptcies, U.S. coal miners are demonstrating they once again can be profitable. Industrial Info is tracking more than $3 billion in active coal mining-related projects, including $1.4 billion in various stages of construction in the U.S.
Five of the country's largest coal producers--Alliance Resource Partners L.P. (NASDAQ:ARLP) (Tulsa, Oklahoma), Arch Coal Incorporated (NYSE:ARCH) (St. Louis, Missouri), Cloud Peak Energy Incorporated (NYSE:CLD) (Gillette, Wyoming), Peabody Energy Corporation (NYSE:BTU) (St. Louis, Missouri) and Warrior Met Coal Incorporated (NYSE:HCC) (Brookwood, Alabama)--reported a collective $801 million in third-quarter earnings before interest, taxes, depreciation and amortization. That represents more than a 76% increase from third-quarter 2016 earnings of $454 million, and Peabody Energy's highest profit since 2012.
It's a sharp reversal from a few years ago, when low coal prices and excessive debt drove many of America's largest miners into bankruptcy. With many producers now emerging with stronger balance sheets, the coal industry is benefitting from a period of higher seaborne prices for thermal coal, which is used for power and heat generation, and metallurgical (met) coal--used to produce coke--the primary source of carbon used in steel-making.
The elevated prices can be attributed, in part, to soaring Chinese imports. Exports helped support pricing and sales volumes in the third quarter for Alliance Resource Partners, with increased domestic and overseas demand likely to lead to strong sales in the next several quarters, company executive said last month. Industrial Info is tracking $175 million in active Alliance projects and is monitoring 10 plants in the U.S.
"Exports have played a major role in supporting U.S. coal prices in 2017, and it appears domestic markets have bottomed-off very low levels," Alliance Chief Executive Joe Craft said in an earnings-related call.
Alliance expects to see higher sales to domestic utilities because of a number of legacy contracts with higher-cost mines that are set to expire. However, the producer said it also encountered "adverse geological conditions" at its Hamilton mine in Dahlgren, Illinois, during the third quarter, which caused results to come in below expectations. However, the company partially made up for that issue by selling coal from its inventory, and the mine is now back up to its planned production levels. For that reason, Alliance still expects to meet its full-year guidance.
Fewer than six months after emerging from Chapter 11 bankruptcy protection, Peabody Energy reported a profit of $203 million on revenues of $1.48 billion for the third quarter of 2017. Industrial Info is tracking just over $677 million in active Peabody projects in Australia. Industrial Info's database also includes 25 Peabody plants in the U.S.