Arch Coal, Inc. reported net income of $62.8 million in the second quarter of 2019, compared with net income of $43.3 million in the prior-year period. Revenues totaled $570.2 million for the three months ended June 30, 2019, versus $592.3 million in the prior-year quarter.
The Metallurgical segment achieved a per-ton margin of $53.80 on the strength of an average per-ton coking coal price realization of $131.88, which was only slightly lower than the record level in the previous quarter, and an average per-ton cost of $62.07.
Looking ahead, Arch said in a statement that it is increasing the midpoint of its 2019 coking coal volume guidance by 100,000 tons – to a range of 6.7 to 7.1 million tons – and reducing the midpoint of its cost guidance by $0.50 per ton – to a range of $61 to $65 per ton. Arch expects a relatively comparable financial contribution from its Metallurgical segment in the third quarter of 2019 relative to the second quarter of 2019, as increased shipping volumes are counter-balanced by lower projected index-based pricing.
The company said global coking coal markets remained strong in the second quarter, with High-Vol A prices averaging $197 per metric ton FOB the US East Coast during the period. While prices have pulled back more than 10 percent since that time, Arch continues to see coking coal supply and demand in relative balance – although further weakening in the global economy and compressed steel margins could serve to dampen the near-term market outlook.
Arch added that through the first half of 2019, coking coal markets were “well-supported by underlying market fundamentals.” Global steel output was up 5 percent through May, according to the World Steel Association, as was pig iron output, the company noted.
“Economic stimulus measures drove robust steel demand growth in China, and North American steel production and blast furnace capacity factors increased materially,” the company said. “Weaker economic growth and industrial output represented a persistent concern in Europe, but indigenous European coking coal supply remained under pressure. Chinese coking coal imports increased more than 20 percent through the first half of 2019. Indian import activity got off to a lackluster start, but sustained and significant steel sector expansion is still projected in that country.”
On the supply side, Arch views investment in global coking coal supply as insufficient given projected growth in global steel output and the impact of ordinary reserve depletion at existing metallurgical mines.
“Australian coking coal exports were up just 2 percent through May – well off the pace set in 2016, which was the country's high-water mark for such exports. In addition, US coking coal exports continued to undershoot 2018 levels despite a consistently strong pricing environment in recent years, with metallurgical exports down an estimated 10 percent through May. While metallurgical exports from both Russia and Canada were up year-to-date, those volume increases mainly served to offset US declines.”