Arch Coal Inc.
) made a strategic move to expand its footprint in the world's
second largest economy, China. The company's business wing
Asia-Pacific Pte. Ltd. established operations in Beijing to tap
the growing metallurgical and thermal coal demand overseas.
The operations in Beijing will promote easy and cost-effective
metallurgical and thermal coal transactions as well as enhance
logistic capabilities. This step would also boost the
marketability of Arch Coal's metallurgical coal production
especially with the addition of high-volatile product from the
Leer Mine located in Appalachia in the U.S.
Moreover, the company will be able to easily access the
neighboring coal markets of India, Malaysia, Thailand, Vietnam
and South Korea as well as Japan.
Its domestic coal businesses were hit in 2012 by low natural
gas prices which forced Arch Coal to look for international
buyers. Last year U.S. coal shipments reached a record 114
million tons. Among the countries, China emerged to be the one of
the prime coal importer.
With natural gas prices recovering from recent lows, the
increasing coal-to-gas switch for power generation witnessed in
2012 will slow down. This will bring coal back to the energy
game. Arch Coal will thereby benefit from improving coal
fundamentals in the domestic market.
Further, its opportunities are starting to look up given the
300 gigawatt of coal-fired generation that is expected to come
into service in the next 5 years worldwide.
The projected 3% surge in global steel market in 2013 as per
the World Steel Association will also drive metallurgical coal
production. The company has already booked a substantial 6.5
million tons of metallurgical coal for 2013 which will support
its growth objectives.
We believe China's appetite for coal will increase on account
of its cost-competitive nature which will spur returns for Arch
Coal with this new initiative.
However, other major coal exporting countries like Australia
and Indonesia would continue to pose stiff competition owing to
their locational advantages. In addition, pro-environment
legislations undertaken by the current government and soft steel
markets in Europe could limit Arch's prospects.
At present Arch Coal retains a Zacks Rank #3 (Hold). Coal
companies that are performing well as of now include Zacks Rank
Alliance Holdings GP, L.P.
Alliance Resource Partners LP
James River Coal Co.
Based in St. Louis, MO, Arch Coal engages in the production
and sale of steam and metallurgical coal from surface and
underground mines located in the United States.
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