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Arch CEO sees balanced metallurgical coal market, but anticipates volatility

Metallurgical coal markets are likely to remain strong and relatively balanced going forward, but the "new norm" will also be a good bit of pricing volatility, a U.S. coal executive said May 17.

Arch Coal Inc. CEO John Eaves said supply and demand fundamentals in the seaborne metallurgical coal markets now seem to be roughly in balance. The company has focused on building a platform that can withstand the price swings likely to come into play in such a market, he said during a presentation at the Bank of America Merrill Lynch 35th Annual Global Mining, Metals & Steel Conference.

"I would tell you that pricing is going to be volatile. I don't think that changes," Eaves said. "What that means is anytime you get along with a couple million tons or you get short, you're going to have these massive swings in prices, and I think that's kind of the new norm."

The company is expecting about 40 million tons of global metallurgical coal demand growth between 2018 and 2025, Eaves said. A big piece of that will be demand from India, but he also noted opportunities in Europe, South America and South Korea. However, he also said U.S. coal exports are expected to decline over that same period, meaning "production in this country is going to be under pressure."

Eaves said Arch has worked hard to position itself as a low-cost metallurgical coal producer that can continue to profit from sales when the cyclical seaborne market hits a trough. He said industry averages for coking coal from the U.S. were around $75 per ton, while Arch's costs are around $62.50.

"It's been kind of an interesting journey for the coal industry the past three or four years," Eaves said. "But I think we're through some of the tough periods. We think we positioned the company very well. ... We think we put the company in a position that not only can we create value for you guys in the good times, we can do it in the tough times, and we think that's a good place to be."

Eaves said that while the metallurgical coal market could likely benefit from some consolidation, Arch does not see any appealing opportunities outside of its potential internal growth projects.