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Arch coal announces Q2 loss

World Coal,

Arch Coal has reported a loss of US$ 72.2 million in the Q2 2013 compared to a loss of US$ 435 million in the same period last year. Revenues were down 21% to US$ 766 million, reflecting weakness in metallurgical coal markets compared with 2012.

Commenting on the results, John Eaves, president and CEO, said that company was "taking the right steps to weather this downturn", including the sale of non-core assets. The company sold Canyon Fuel Co. to Bowie Resources for US$ 435 million earlier this year. ”The divestiture of Canyon Fuel will streamline Arch's asset portfolio and allow us to focus our resources on the most value-enhancing parts of our business," said Eaves. "Those elements include optimising a strong Powder River Basin franchise, building out and upgrading our Appalachian metallurgical coal platform and maintaining low-cost thermal coal assets to serve both the domestic and export coal markets."

Depressed metallurgical coal market “unsustainable”

In its results statement, the company also noted that it believes currently depressed metallurgical coal market trends to be “unsustainable over the long term”. It noted that global crude steel production is forecasted to increase 35% between 2012 and 2020, reaching 2 billion t by the end of the decade. This will drive future metallurgical coal demand, while a reduction in capital spending for future metallurgical coal projects and supply rationalisation at existing metallurgical coal operations will help balance supply.

"Even with a near-term cautious outlook on global metallurgical coal markets, we're confident that supply will decline and demand will rebound over time," said Eaves. "Metallurgical coal output and capital spending levels industry wide are in the process of significant rationalisation, setting the stage for the next market upswing as global economies begin to improve."

An “improving” US outlook

There was more positivity from Arch about the outlook for U.S. thermal coal. The company noted that to May 2013, domestic coal use for power generation has increased 10% compared with the same period last year. It now expects thermal coal consumption in the US to rise by 50 million short t on 2012 levels.

Moreover, according to Mine Safety and Health Administration data, US coal production has declined more than 20 million short t to June 2013. The increased demand and decreased supply are reducing coal stockpiles at US power generators, with Arch’s internal estimates suggesting that customer coal stockpile levels have declined to roughly 170 million short t at the end of June 2013, representing a 15 million short t reduction since the beginning of the year.

The company also expects that US coal exports will remain above 100 million short in 2013, despite low global prices for thermal coal.

Sales outlook

For the year, Arch currently expects thermal sales volumes, including volumes from Canyon Fuel, to be in the range of 130 million to 137 million short t for 2013. This is up on previous expectations of 125 million – 135 million short t.

The company has lowered its metallurgical sales forecast and now expects to ship between 7.7 million and 8.3 million short t into metallurgical coal markets during 2013.­­­

Written by Jonathan Rowland

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