After a challenging second quarter and first half of the year, US' Arch Resources expects stronger thermal and metallurgical coal sales in the latter half of the year, executives said during the company's earnings call July 28.
"We believe we positioned the company for an improved performance in the second half of the year," Paul Lang, president and CEO, said on the call.
"We're expecting higher volumes and continued strong cost performance from our core coking coal franchise and a cost structure at the thermal mines that is better aligned with volume expectations."
More than 500,000 st were deferred from contracted 2020 shipments from both domestic and international customers, John Drexler, senior vice president and chief operating officer, said on the call.
However, he said Arch was successful in layering in about 500,000 st of incremental 2020 commitments during the second quarter.
From the Powder River Basin, Arch sold 10.6 million st, down 38% year on year, with coal sales per ton averaging $12.36/st, up year on year from $12.08/st. However, the cash margin was at a loss of 56 cents, compared with a gain of 79 cents.
Sales in the PRB totaled $131 million, down 36.8% from the year-ago period.
From Arch's other thermal segment, 1 million st were sold, down 47.4% from the year-ago period. Cost averaged $29.80/st, down from $39.09/st, with a negative margin of $5.56/st, down from a gain of $5.47/st.
Other thermal sales totaled $30 million, down 60% year on year.
With thermal, "the market environment remains intensely challenging," Lang said.
Arch expects domestic thermal demand to decline 130 million st in 2020, following a 100 million st decline in 2019. Additionally, US utility stockpiles were at all-time highs.
"Along with this, anemic international pricing is preventing most US thermal producers from participating in the seaborne market in a meaningful way," Lang said.
In the second half of the year, Arch is set to ship 33 million st from the PRB, compared with 25 million st in the first half.
Recovery in met coal
On the met coal side, "we've been encouraged to see some early steps toward recovery in recent weeks, although we're almost certainly several quarters removed from anything resembling normality," Lang said.
Met tons sold during the quarter totaled 1.5 million st, down 21.1% year on year, while coal sales per ton averaged $76.17/st, down from $115.87/st. The second-quarter cash margin was $14.22/st, compared with $53.80/st in the year-ago period. Met coal sales totaled $112 million, down 48.7%.
Additionally, the producer expects increased met coal shipments in the back half of the year. Based on committed tons, Arch expects to ship 3.1 million st, compared with 2.8 million st in the first half.
"Chinese seaborne imports are up strongly year-to-date," Lang said. "North American buyers have just issued RFPs on their usual timeline and sales inquiries are on the rise."
However, "on a less positive note, coking coal prices remain at levels we view as unsustainable, even after a modest bounce in recent days," Lang said.
According to Drexler, "while forecasting is quite obviously a tricky business in this environment, we nevertheless anticipate a solid shipping schedule for Q3 and Q4."
The producer posted a net loss of $49.3 million during the quarter, compared with a net gain of $62.8 million in the year-ago quarter, while revenues totaled nearly $320 million, down 44%.
"The bottom line is we're going to react, and we're going to do what we have to do because what's happened in the first half of the year we can't sustain," CFO Matthew Giljum said.
Outlook
Arch has 5.9 million st of its met coal committed in 2020, 1.6 million st of which is priced at $106.60/st in the domestic market, 2.4 million st of which is priced at $83.46/st in the seaborne market, and 1.9 million st of which is unpriced in the seaborne market.
From the PRB, 58.2 million st is committed and 57.6 million st is priced at $12.36/st. In the other thermal segment, the producer has 3.7 million st committed, 3.5 million st of which is priced at $31.10/st.
Regarding the joint venture with Peabody Energy, the two producers are in an ongoing litigation with the Federal Trade Commission following the FTC's attempt to block the JV. Closing arguments are scheduled to take place on Aug. 10, with a decision by the court expected by the end of the third quarter.
