In its most recent earnings report (Q2 2023), Alliance noted that domestic sales so far this year are better than this time last year, but quarter-to-quarter this year the export market has softened. The company subsequently adjusted its coal sales guidance toward the lower of the original guidance for this year.
For 2023, Alliance now expects to sell 35.5-36 million tons. Of which 25-25.25 million tons will be Illinois Basin (ILB) and 10.5-10.75 million tons will originate from Appalachia. Early this year, the company thought it would sell 36-38 million tons, with 27 million tons for the ILB mines and 11 million tons from the Appalachian mines on the high end.
For 2024, the company already has commitments for 26.9 million tons. “Continued strength in our contract book positioned our coal operations to achieve higher realized pricing per ton sold,” said Joe Craft, chairman, president and CEO for Alliance. “Our year-to-date results have been impressive despite coal demand, both domestically and globally, being lower than we expected entering this year, due to slower economic growth, mild weather in our targeted markets, and lower natural gas prices.”
The tons Alliance sold in Q2 2023 increased by 4% in the ILB compared to the Q2 2022 due primarily to increased volumes from the Hamilton and Warrior mines. Appalachia coal sales volumes decreased by 8.5% compared to the Q2 2022 as a result of reduced export sales across the region and lower production from our MC Mining operation. Compared to the Q1, 2023, Illinois Basin coal sales volumes decreased 2% due to lower volumes from River View while coal sales volumes increased by 24.5% in Appalachia. Tunnel Ridge completed a longwall move in Q1 2023.
Alliance ended Q2 2023 with total coal inventory of 1.8 million tons, representing an increase of 200,000 tons and 500,000 tons compared to the end of Q2 2022 and Q1 2023, respectively.
“Until Henry Hub natural gas prices rise above $3 per million Btu, we do not expect any meaningful gas-to-coal switching domestically,” Craft said. “Therefore, we have chosen to reduce our coal production and sales volume guidance for 2023. Production targets have been reduced at our River View and Gibson operations in the ILB and at our Mettiki operation in Appalachia.
“Committed and priced sales tons currently represent 96% to 97% of our updated guidance range, and we plan to sell any remaining uncontracted tonnage primarily into international markets from these three mines,” Craft said. “We have also adjusted the top end of our coal sales price per ton sold range downward based upon recent market analysis. On the positive side, we are lowering our cost estimates for the year as our team continues to find ways to reduce expenses in a stubbornly volatile inflationary environment.”
Craft said he is seeing stability for coal demand over the next several years. “Many of our coal customers are projecting significant growth in electricity demand as record numbers of new manufacturing facilities are being announced to come online over the next several years,” Craft said. “All of these announced projects require exceptionally large electrical loads, adding to the reliability concerns of the stakeholders responsible for meeting the rising energy needs of their customers. The increased electricity demand should lead to slowing the premature closing of coal-fired power plants in the eastern United States. We also expect the growth in LNG terminals coming online over the next five years will support higher domestic natural gas prices further supporting stable demand expectations for our coal operations over the next five to 10 years.”