Met Coal Prices Near Bottom; Q313 Catalyst for Production Cuts (ANR) (ACI) (CNX)

June 13, 2013 8:40 AM EDT Send to a Friend
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Coal stocks are on watch as one firm sees met coal prices near a bottom, with prices expected to rise from here.

FBR Capial said met coal prices have fallen to a point where they will no longer cover cash costs, even for low-cost producers. The firm said, "Our analysis of the cost structures of major seaborne exporters reveals that production cuts will be required not only in the U.S. but also in Australia and Canada. However, we are perturbed at the limited supply response so far from producers, and we think the 3Q13 benchmark settlement, expected to be the lowest since 2009, will serve as a catalyst for production cuts. We believe that the size and timing of the production cuts will dictate the duration and level of the recovery, which could create some volatility in the near term."

For Q313, FBR sees the met coal benchmark coming down to the $150 to $160 per ton level, which is below Street expectations. The firm noted, "During the last four quarters, coking coal contracts have settled at approximately a $10/ton (or 6%) premium to the average spot price over the prior 15 days. This could imply a potential settlement of $145/ton to $150/ton, the lowest since 2009."

Analysis shows production cuts of 20 MTs of met coal production, while 30 MTs were curtailed at one point. Since April 20012, some have tried to increase production slightly to chase the Q412 - Q113 spot price rally.

Overall, FBR is cutting 2013–2014 EBITDA estimates for coal coverage by an average of 7% to reflect weaker-than-expected met coal prices and slower-than-expected production cuts.

On watch today include: Arch Coal (NYSE: ACI), Peabody (NYSE: BTU), Alpha Natural (NYSE: ANR), Cloud Peak (NYSE: CLD), CONSOL Energy (NYSE: CNX), Teck Resources (NYSE: TCK), and Walter Energy (NYSE: WLT).


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