Arch delivers strong operational results
"Despite modestly lower sales volumes, we are off to a strong start in 2017," said Lang. "Our mining complexes delivered strong performances during the quarter just ended. We were successful in achieving higher price realisations across all of our operating segments in the first quarter. In particular, our metallurgical segment delivered a standout performance – attaining an average sales price 40% higher than the 4Q16. At the same time, we continue to diligently focus on managing our controllable costs, driving process improvement initiatives and maximising revenues from our strategic unpriced volume position, with the goal of enhancing margins at each of our operations."
In the metallurgical segment, first quarter 2017 cash margins increased nearly 165% vs 4Q16. Average sales price per ton rose US$25.23 in the first quarter of 2017 when compared with the fourth quarter of 2016, benefiting primarily from the ongoing strength in metallurgical coal markets. Sales volumes declined 12 percent over the same time period, due primarily to two planned longwall moves and to restricted lake season delivery schedules. Notably, Arch shipped 1.5 million t of coking coal at an average realised price of US$105.51, a 40% increase over the average realised price achieved in the fourth quarter of 2016. Coking coal realisations benefited from significantly stronger pricing on index-based tons that shipped during the period as well as new sales. Higher per ton cash costs in the segment were driven by higher sales-sensitive costs, lower volume levels, and the impacts of the two longwall moves. Arch believes its prior cost guidance for the segment is appropriate, and that this cost structure places Arch's operations firmly at the low end of the US metallurgical coal industry's cost curve.
In the Powder River Basin, first quarter 2017 sales volumes declined modestly compared with the fourth quarter of 2016. Average sales price per ton increased US$0.16 in the first quarter when compared to the fourth quarter of 2016, benefiting from a favourable mix of customer shipments. Segment cash costs increased US$0.45/t over the same time period, driven by the impact of lower volume levels, increased repair and maintenance expense and higher fuel prices. As previously indicated, the segment's fourth quarter cost performance was exceptionally strong. Arch is maintaining its cost guidance of US$10.20 to US$10.70/t for the full year.
Key market developments
Metallurgical coal markets
- The lingering impact of Cyclone Debbie, which continues to disrupt the coking coal logistics chain in Queensland, Australia, is buoying global metallurgical markets. According to the principal Queensland rail carrier an estimated 20 million t of predominately coking coal supply was impacted due to the storm. The seaborne metallurgical market totals approximately 300 million t.
- Prior to the storm, metallurgical markets appeared to be in relatively healthy balance. Steel demand grew robustly in the first quarter; Chinese coking coal imports were up 50% year-over-year; and the expected seaborne coking coal supply response was largely confined to US producers, who moved an additional 2.4 million short t of metallurgical coal into seaborne markets during the first quarter.
- In late March, before Cyclone Debbie made landfall, the Platts price assessment for vessels loaded off the US East Coast was US$162.50/t for High-Vol A, Arch's primary metallurgical product. After the storm hit, High-Vol A prices peaked mid-month at US$295 and have since settled back to US$237/t. Low-Vol and High-Vol B products are currently being assessed at US$212 and US$185 per ton, respectively.
Thermal coal markets
- In thermal markets, still-inflated utility stockpiles continue to dampen domestic demand and pricing, but the situation is improving. Assuming normal summer weather, Arch believes stockpiles should approach target levels by year-end.
- Moreover, Arch is encouraged by the persistent strength in natural gas prices, which continue to hold up well despite an exceptionally mild winter and significant recent increases in drilling activity. Prompt month NYMEX is currently trading over US$3.20 per million Btus and the future strip for the remainder of 2017 averages US$3.39 per million Btus.
- At the natural gas pricing levels noted above, Arch expects the vast majority of Powder River Basin-served coal plants to dispatch in front of natural gas-fuelled power plants. In fact, several large customers have re-entered the market in recent weeks to shore up their coal supplies in the face of improving coal consumption.
- International thermal pricing for prompt delivery in the Asia-Pacific region remains reasonably strong. Arch took advantage of the recent move higher to place additional West Elk tons into export markets.
Based on the company's current expectations regarding the direction of metallurgical coal markets, Arch has raised its coking coal volume guidance for 2017. Arch now expects to sell between 6.7 and 7.1 million t of coking coal, which excludes PCI coal. At the midpoint of its volume guidance level, Arch is over 85% committed on coking coal sales for the full year, with over 30% of that committed volume exposed to index-based pricing. At the midpoint of guidance, Arch's thermal sales are 88% committed for the full year.
Read the article online at: https://www.worldcoal.com/coal/03052017/arch-coal-inc-reports-1q17-results/