Half of major US coal companies beat analysts' expectations in Q3'21

Half of the top publicly traded U.S. coal companies beat analysts' expectations in the third quarter, with the majority recording profits for the period.

Peabody Energy Corp., Warrior Met Coal Inc., Alliance Resource Partners LP and Alpha Metallurgical Resources beat analysts' expectations. The four companies reported positive earnings per share, alongside Arch Resources Inc. and Ramaco Resources Inc.

Only two publicly traded U.S. coal companies booked negative earnings per share for the quarter, Consol Energy Inc. and Hallador Energy Co. The two companies missed analysts' expectations, together with Arch Resources and Ramaco Resources.

Coal demand from power producers and steelmakers has been rebounding from lows hit during the beginning of the COVID-19 pandemic, in part due to high natural gas prices and expectations of increased infrastructure spending. Analysts expected every major U.S. coal company to report higher earnings in the third quarter compared to the prior quarter as coal prices surged, due in part to increased domestic and export demand.

U.S. coal companies' stock prices have rallied in 2021, and producers of the bulk commodity are expected to book significant positive free cash flow in the second half of 2021 and in 2022.

"Peabody had a very good third quarter, with our results benefiting from current robust global coal market dynamics. Strong operational performance, coupled with increased seaborne pricing and global demand, yielded quarterly results we have not seen since 2018," Peabody Energy President and CEO James Grech said during an Oct. 28 earnings call.

"Our seaborne thermal margins benefited from price increases of 66% in the quarter compared to the prior year, and the segment is on target to deliver higher export volumes in the fourth quarter as compared to prior quarters in 2021," Grech added. "Our seaborne met segment continues to deliver on efforts to expand margins through cost and productivity improvement initiatives as well as sales strategies."

Peabody Energy beat analysts' forecast by 1,357.1%, booking earnings per share of $2.04 for the third quarter.

Warrior Met Coal and Alpha Metallurgical Resources attributed higher coal pricing to the trade dispute between China and Australia and strong demand for the commodity.

"The combination of solid market fundamentals across the world, and ongoing geopolitical tensions between the world's largest met coal consumer and the world's largest met coal producer, have elevated pricing for our products to levels we have never seen before," Warrior Met Coal CEO Walter Scheller said on a Nov. 2 earnings call.

"China remains lost in a self-imposed supply constraint due to the continued ban on the import of Australian coals, included COVID-19 protocols at the Mongolian border crossing and due to policy measures, and have limited output of domestic met coal production," Scheller said.

"In addition, the Chinese government's mandate to keep steel production growth at 0% compared to 2020 has led to drastic cuts in steel production. As such, Chinese producers have been able to absorb higher met coal prices as the margins have remained quite healthy due to higher steel prices and lower iron ore costs, both direct consequences of the aggressive steel production cost mandated by the government. In the short term, we see these trends continuing," Scheller added.

"The early year volatility in the seaborne metallurgical coal market began to subside in the second quarter with a more traditional equilibrium between Australian and Atlantic indices continuing into the third quarter," Daniel Horn, Alpha Metallurgical Resources' executive vice president of sales, said on a Nov. 5 call. "Despite China's continued ban on Australian coal imports, the Australian premium low-vol index more than doubled in the third quarter, from $190 a metric ton on July 1 up to $401 per metric ton on September 30."

"This yielded much higher realizations for our Aussie link tons during the quarter, further confirming the importance of our decision to continue delivering on our customer commitments throughout this brief period of lower pricing," Horn added. "While the trade tensions between China and Australia have not yet been resolved, this has created opportunities for other producers to fulfill China's need for high-quality coking coal, and Alpha's products have been well received there."

Meanwhile, the Biden administration's clean energy agenda for the U.S. is also playing a role in the sustained elevated price levels of fossil fuels, according to Alliance Resource Partners.

"In the United States, natural gas prices have nearly doubled, causing coal-fired generation and [Alliance Resource Partner's] primary markets to jump 23% year over year. Coal generation could have been even higher. However, supply has been limited due to numerous issues, almost none of which should be attributed to the producers of America's most abundant low-cost fuel coal," Joseph Craft, Alliance Resource Partners President and CEO, said during an Oct. 25 call.

"Looking forward, the Biden administration's domestic energy policy agenda, combined with [environmental, social and governance] obsessions in Europe and the United States, will most likely continue to restrict growth in fossil fuel production. Absent any significant global demand destruction, we expect fossil fuel prices will remain at elevated levels through next year and into 2023," Craft said.

Alliance Resource Partners reported earnings of 44 cents per share in the third quarter, 22.2% higher than the consensus estimate of 36 cents per share.