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US coal companies hopeful for a better year

World Coal,

Major US coal producers are hopeful for a better year on the back of coal weather and an increase in gas prices: “US coal fundamentals have improved from a year ago as colder temperatures and rising natural gas prices result in utilities increasingly returning to coal,” said Gregory Boyce, chairman and CEO of Peabody Energy Boyce in a conference call to discussthe company’s Q1 results with analysts.

In Peabody’s results statement, Boyce set a positive tone for the year ahead: "We now expect that during 2013, coal will recapture the vast majority of its 2012 demand that was lost to natural gas.”

US coal markets have been seeing a slow recovery after last year’s mauling at the hands of ultra-low gas prices. According to Peabody, coal demand grew 8% in Q1 2013 and accounted for about 40% of electricity generation. Meanwhile, natural gas prices have more than doubled on the previous year, leading to a switch back to coal among utilities. This trend accelerated in March when coal-fired generation rose by 15%, while gas generation dropped 16%, the mine said in its Q1 earnings report.

The long winter has also improved the prospects for coal. According to Peabody, coal stockpiles are about 20% lower than the same period last year, as coal shipments fell by 10% in Q1 2013 but demand for coal remained through a prolonged period of cold weather: “As the winter has extended into April for much of the country utilities have continued to burn coal while taking their contracted tonnes,” said Colin Marshall, president and CEO of Cloud Peak Energy in its Q1 results statement. Cloud Peak Energy estimated coal stockpiles of Powder River Basin coal at 83 million short t at the end of March 2013, noting that “Historically, we have seen price support for PRB coal at stockpile levels of around 80 million short t.”

Peabody now projects 2013 coal consumption for electricity generation will grow by 60 – 80 million short t over 2012 levels based on Q1 demand. Arch Coal was similarly positive in its Q1 earnings report, expecting US coal consumption for power generation to increase by 50 million short t or more in 2013 compared with 2012, due to favourable weather trends and higher natural gas prices.

Arch also saw positive news for US exports of metallurgical coal: “Global steel production also is projected to grow in 2013 with Asia, Latin America and the US leading the increase. Arch expects US metallurgical coal exports to remain elevated, with overall US coal exports projected to total above 100 million short t in 2013.”

Written by Jonathan Rowland.

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