Arch Coal Inc.
) has revised its fourth-quarter and full-year 2013 coal sales
guidance. The company has decreased its quarterly sales
expectation for thermal as well as metallurgical coal ("met
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The downward revision in the thermal coal guidance was primarily
due to lower-than-estimated shipment from the Powder River Basin
("PRB") as a result of rail-service issues on the Joint Line.
During third-quarter 2013 earnings call, Arch Coal had provided
its 2013 thermal coal sales volume guidance in the range of
134.0-137.0 millions tons. The company now expects sales volume
to decrease in fourth-quarter 2013 from the previous expectation
due to the drop in shipment, which will also negatively impact
the 2013 coal sales projection. In addition, a drop in shipment
volume is expected to increase unit costs, thereby impacting
On the met coal side, Arch Coal has confronted several challenges
at its operations in Appalachia owing to unfavorable geologic
conditions at the current long wall panel in the Mountain Laurel
complex. The company expects its fourth-quarter production to
drop 40% from the prior-quarter level. Arch Coal now expects 2013
met coal sales volumes to come in below the low end of the prior
guidance of 6.9-7.3 millions tons.
The company has however taken quite a few measures to expand its
coal reserves. In Dec 2013, the company started long wall mining
techniques at Tygart Valley's Leer mine in northern West
Virginia. We believe the production of high quality met coal from
the Leer mine will increase from the first quarter of 2014.
As per a World Steel Association report, utilization of steel is
expected to increase in 2014 on the back of higher steel demand
in the U.S., China, India, Russia, Ukraine, and the Middle East
and North African ("MENA") region. The increase in steel demand
is due to the growth in the automotive, energy and residential
construction sectors, positive impacts of structural reforms, and
public non-residential constructions. Subsequently, the demand
for met coal is expected to increase in the near term.
We note that Arch Coal continues to book strong contracted sales
figures. For 2014, the company has contracted 80% of its sales
volumes. Arch Coal has managed to secure multiple agreements with
customers, which run through 2018 and assure a steady revenue
Arch Coal currently has a Zacks Rank #3 (Hold). However, some
better-ranked stocks in the same sector include
Athlon Energy Inc.
Clayton Williams Energy Inc.
Cabot Oil & Gas Corporation
). While Athlon Energy and Clayton Williams Energy hold a Zacks
Rank #1 (Strong Buy), and Cabot Oil & Gas carries a Zacks
Rank #2 (Buy).