SunCoke Energy Inc.
) received a 10-year extension of its existing agreement with
steel making giant
) for the supply of 1.22 million tons of metallurgical (met) coke
from its Indiana Harbor cokemaking plant annually. The cokemaking
plant is primarily owned by SunCoke Energy (85%) while
DTE Energy Company
) holds the remaining 15%.
Coke is the primary raw material used in the production of steel.
The renewed contract is expected to come into effect from Oct 1,
2013 and the conditions remain more or less unchanged from the
These include continuing pass-through of costs, recouping
operating and maintenance expenses subject to certain metrics and
price adjustments per ton of coke to recognize the roughly $85
million capital investment incurred for revamping and upgrading
the Indiana Harbor facility.
The plant retrofit tasks are projected to be concluded by the
first quarter of 2014. However, upgrades related to the
replacement of equipment with long-lead order will take time and
will be entirely implemented in early 2015.
SunCoke Energy expects a substantial boost in its operation and
financial results in 2014 on account of these measures although
the full positive impact will be realized in 2015. SunCoke Energy
and ArcelorMittal's business relationship goes a long way with
the latter being one of SunCoke Energy's key clients.
The company has been delivering met coal from the Indiana harbor
plant since 1998 and was the first to implement its heat recovery
technology. With the deal supposed to expire in 2013, getting the
extension was SunCoke Energy's primary agenda.
Located in East Chicago, Ind., the cokemaking plant is central to
SunCoke Energy's operations. The company has been working to
improve the plant's production capabilities. Recently, it
acquired Lakeshore Coal Handling Corporation from Beemsterboer
Corp. which will offer coal handling and blending services.
The contract renewal is a major catch for SunCoke Energy this
year which will offer a steady revenue stream for a decade. In
addition, the company's Brazil operations are poised to gain from
increasing steel demand as the country plays host to important
events like the World Cup Football and Olympics in 2014 and 2016,
However, the persistent weakness in met coal prices remains a
concern. Currently, the company holds a Zacks Rank #3 (Hold).
Meanwhile, a coal market operator looking good at the moment is
Zacks Ranked #1 (Strong Buy)
Alliance Resource Partners LP
ALLIANCE RES (ARLP): Free Stock Analysis
DTE ENERGY CO (DTE): Free Stock Analysis
ARCELOR MITTAL (MT): Free Stock Analysis
SUNCOKE ENERGY (SXC): Free Stock Analysis
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