Arch Coal witnessed another lackluster quarter with wider loss in
the first quarter of 2014, primarily due to weakness in the global
metallurgical market and rail congestion issues in the Powder River
Basin. However, improvement in thermal coal demand in the U.S. will
contribute to declining inventory thereby balancing U.S. coal
market fundamentals. The ramp-up of longwall mining in the Leer
mine will allow Arch Coal to enjoy higher production at lower cost.
The company's cost-containment efforts are appreciable but the
positive effects of the same are yet to be realized in all regions
Arch Coal operates. The expected increase in steel demand led by
rising infrastructure activities in the Asian markets will steadily
increase the global met coal demand and present opportunity for
coal export. However, stringent environment mandates and stiff
competition from Australia and Indonesia are potential headwinds in
its growth trajectory. Hence, we retain our Neutral recommendation
on the stock.
St. Louis, Mo.-based Arch Coal Inc. (ACI) is one of the largest
coal producers in the U.S., operating 22 mines across major coal
basins of the country. The company serves customers in over 20
countries. Arch Coal sells coal to power plants, steel mills and
industrial facilities under long-term contracts. The company also
owns a 42% interest in Knight Hawk Holdings, a coal producer in the
Arch Coal primarily conducts its business through three
operating segments: Powder River Basin (PRB), having operations in
Wyoming Appalachia (APP), having operations in Kentucky, Maryland,
Virginia and West Virginia and Other, having coal mining operations
in Colorado and Illinois.
Coals mined from the PRB region have very low sulfur content and
low heat value. Bituminous coals usually have a low sulfur content
and varying heat value. Appalachia produces coals, which have low
sulfur content and high heat value. Metallurgical (met) coal has
low sulfur content, high heat content, low expansion pressure and
several other chemical properties.
During 2013, Arch Coal sold 140.7 million tons of coal,
including around 2.8 million tons of coal sourced from third
parties. At year-end 2013, the company had roughly 5.3 billion tons
of met and thermal coal reserves.
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