Nomura Securities on U.S. Coal Sector: MSHA 2Q Shows Production Curtailment in Effect

July 23, 2012 10:52 AM EDT Send to a Friend
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Nomura Securities on U.S. Coal Sector: MSHA 2Q shows production curtailment in effect.

Analyst, Curt Woodworth, said, "Preliminary MSHA coal production data for 2Q-12, as of 7/20, records a 17% QoQ decline as a result of more aggressive production curtailment, weaker crossover met demand and lower demand from domestic utilities (34% and 32% of coal gen share in March & April, respectively) in the quarter. We estimate ~30mt of coal production was reduced in 1Q, while almost doubling this amount was announced in 2Q. We believe production curtailment has reached a peak in 2Q, as we only saw scattered trimming in the past few weeks, highlighted by Alpha Natural's (NYSE: ANR) announcement of likely completing with their production cuts this year. CONSOL Energy (NYSE: CNX) demonstrated in the operational update on 7/13 that its coal demand is still holding up well despite structural erosion in Eastern thermal markets. Illinois basin holding up the best. Coal-to-Gas substitution peaked in 2Q, PRB and Natgas sees support this summer."

Nomura reiterates a 'Buy' on CNX, maintains 'Buy' on CNX, Neutral on Peabody (NYSE: BTU) and Reduce on Arch Coal (NYSE: ACI).


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