U.S. coal companies able to take advantage of healthy international pricing are expected to post strong results in the second-quarter earnings season despite a years-long struggle with weak domestic demand.
Strong seaborne coal markets have persisted for more than a year after many of the largest U.S. coal companies restructured their balance sheets in bankruptcy reorganizations. Investors and analysts are expecting many of those top U.S. coal companies, particularly those with metallurgical coal assets, to again post strong results.
The U.S. Energy Information Administration released an international market outlook this week that forecasts significant economic growth in India and China, potentially providing an opportunity for U.S. coal and gas exporters to take advantage of rapidly expanding energy markets.
Peabody Energy Corp., the first U.S. coal company to report its earnings, is also the largest. Although its results missed analyst estimates, the company still posted higher second-quarter net income of $113.7 million compared with a net loss of $20.2 million in the same quarter a year earlier.
Norfolk Southern Corp. railroad's operating revenue from coal increased by slightly more than 4% year over year in the second quarter as overall revenue also grew. Alan Shaw, executive vice president and chief marketing officer, said in the company's July 25 earnings call that the increase in coal revenue was "driven largely by sustained, high overseas demand for U.S. coals." Norfolk Southern anticipates coal export volume to settle between 6 million and 8 million tons per quarter.
Meanwhile, Germany's hard coal imports are expected to land at 45 million tonnes in 2018, down 12% from of 51.2 million tonnes in 2017, due to competition from the growing capacity of renewable energy, Reuters reported July 19, citing importers group VDKi. Power generation based on coal declined 20.9% year over year in the first four months of 2018 as renewables again benefited from favorable wind and sunshine patterns, which boosted yields, VDKi Managing Director Franz-Josef Wodopia said at a news conference.
U.S. coal consumption has also been on the decline as utilities increasingly favor alternative and cheaper means of generating electricity. However, abundant coal reserves and the potential of new technology have a few entrepreneurs looking for coal's future beyond the usual utility customers. Executives leading two efforts to develop new commercial uses of coal spoke to members of the U.S. Congress on July 24. While part of the event was aimed at a recent boom in export opportunities for U.S. coal, witnesses at a hearing hosted by the U.S. House Committee of Natural Resources' Subcommittee on Energy and Mineral Resources also talked about the potential of turning coal into oil and carbon fiber products. Executives from companies working on alternative uses for coal said they felt supported by lawmakers after the hearing.
In other news, Murray Energy Corp. will continue to delever its businesses to weather the impact of shrunken domestic coal demand and has mitigated the potential consequences of a subsidiary's bankruptcy by finding new customers, Chairman, CEO and President Robert Murray said. He also told S&P Global Market Intelligence that Murray Energy, and its affiliates and subsidiaries, are reaping the benefits of seaborne demand for U.S. coal and will increase sales into the export market to 22.5 million tons this year.
Murray also called out the media's focus on the coal lobbying past of U.S. Environmental Protection Agency Administration Acting Administrator Andrew Wheeler, saying it is "very unfair" and that he is staying away to avoid the appearance of any impropriety. "I have been careful not to have any contact with Andrew Wheeler," Murray told S&P Global Market Intelligence in a phone interview. "I've had none, zero since he was sworn in. He's got enough issues to deal with without someone claiming once again that his time with Murray Energy is somewhat of a detriment to him be able to fulfill his mission."
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