“U.S. coal fundamentals have improved from a year ago,” said CEO Gregory H. Boyce. “We continue to exercise capital discipline, maximize cash flows and reduce debt,” just as “within global markets, U.S. coal demand is rebounding.”
Despite a Q1 loss of $23.4 million, Peabody forecasts a 2013 coal sales increase to 250 million tons, up from 2012’s 225.7 million tons, owing also in part to cost-cutting in Australia, according to the St. Louis-based company. Barring impairment and closing costs, however, sales fell 13% to $1.75 billion from $2 billion in 2012.
But Chinese rapid-fire industrialization amid a leadership change in Beijing and imports for an energy-starved India are fast fueling demands, said company representatives. Q2 metallurgical coal price benchmarks for high-quality hard coking coal, most notably, settled at $172/ton—rising for the first time since Q2 2012.
China’s imports increased 30% as imports from the Indian subcontinent jumped 25% in Q1. India, poised to surpass the China as the world’s most populous nation, has now surpassed Japan as the No. 2 thermal coal importer after China. In 2009, China beat Japan as the world’s second-biggest economy after the U.S.
European coal generation remains strong also following high natural gas prices, falling nuclear power and unreliability and costs tied to renewables. Germany’s coal generation, for example, increased 16%. Peabody also projects 2013 U.S. coal consumption to grow up to 80 million tons over 2012 based on strong Q1 demand, having increased 8% while accounting for about 40% of total electricity generation.
Rising costs for American natural gas are also prompting many power plants to revert to coal use. U.S. coal consumption for electricity is expected to increase 7.3% to 885.2 million short tons in 2013 overall, according to a recent U.S. Department of Energy report. Coal companies had slashed output 6.9% in 2012, shuttering mines while firing workers, the result of harsh regulations from Washington coupled with a proliferation of cheap North American gas.
Peabody also expects year-on-year coal demand increases to continue into Q2; moreover, Q1 shipments fell 10%, leaving above-average stockpile. Wyoming’s Powder River Basin and Illinois Basin inventories have now dropped 20% below prior-year levels, and are on track to return to normal later in 2013.
In Q1, sales at Peabody’s Australian segment, accounting for 43% of 2012 revenue, fell 9.5% to $77.15/ton, while U.S. costs rose 1% to $15.96/ton. Peabody officials said in a report they expect costs “in the low $80/ton range,” in 2013. Peabody said costs to produce U.S. coal will likely fall down to 3% this year.
