According to Seaport Global research, barring any meaningful retaliation that affects the overall steel market, Arch Coal expects 2-3 million net tons of additional domestic coking coal demand in the US resulting from Section 232 higher domestic steel production. A Seaport analyst stated, “Tariffs could eventually add 5 percent to the overall US met coal demand, all of which would be serviced by domestic producers.” Arch management expects a 1-2 percent annual average global coking coal demand growth through 2025 which translates to about 40 million mt of additional coking coal supply.
At the recent Global metals, mining and steel conference hosted by Bank of America Merrill Lynch, John W. Eaves highlighted that the Arch coal product slate is dominated by high-vol A coals that earn a market premium and that their modern coking coal mines operate at the low end of the US cost structure compared to competitors. At the midpoint of 2018, Arch’s costs of $62.50/nt are estimated at around $12.50/nt lower than the estimated US average of $75/nt. Eaves added that Arch expects increases in revenue as its cost structure is expected to remain competitive while the industry cost curve is expected to shift up.
The Leer, Sentinel, Mountain Laurel, and Beckley met coal sites in West Virginia as a percentage of expected 2018 sales are expected to contribute approximately 55 percent of high-vol A grade, 30 percent of high-vol B grade, and about 15 percent of low-vol grade. In mid-May, Eaves noted that the monthly US East coast assessment was at $184/mt for high-vol A grade, $149/mt for high-vol B grade, and $173/mt for low-vol grade.