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Murray Energy extends forbearance period; rails note weaker Q3'19 coal business

As many awaited news from Murray Energy Corp. regarding its plan amid financial distresses, the coal producer announced last week that it had amended its forbearance agreement with lenders, extending the period through Oct. 28.

The nation's largest privately owned coal producer also did not make cash interest payments due Oct. 15 on some senior secured notes, according to a release from Murray Energy. The agreements with its lenders will terminate either at the end of the forbearance period or once there is a specified forbearance termination event.

This week, Arch Coal Inc. will kick off the coal sector's earnings season, reporting its third-quarter results Oct. 22. Last week, three of the major railroads discussed their financials during the recent period, all of which saw declines in their coal segments.

CSX Corp., an especially significant transporter of eastern metallurgical coal, suffered from low export pricing, and executives said they expected that impact to continue into the fourth quarter. Union Pacific Corp. reported a 17.3% drop in coal carloads from the third quarter of 2018, citing the challenging market, which also contributed to a 20% drop in energy-related revenue. Kansas City Southern executives made little mention of the fuel, noting only that utility coal carloads increased slightly. Third-quarter revenue from its utility coal, as well as its coal and petroleum coke segments, saw single-digit declines year over year.

A Peabody Energy Corp. announcement last week also signaled further consolidation in the Illinois Basin, a region that experts have said could benefit from reduced capacity. The coal producer plans to shutter its Wildcat Hills mine in Illinois. All told, at least 6.4 million tons of capacity, based on 2018 production, is slated to come offline in the basin by the end of the year.

Analysts projected continued declines in the thermal coal sector during the week ended Oct. 18, but one suggested things could be looking up for the metallurgical coal market.

Moody's Investors Service expects the Powder River Basin, the nation's largest coal-producing region, to see a significant decline in 2020 output that may result in mine closures in the coming years. Benjamin Nelson, a vice president and senior credit officer with Moody's, wrote in a note that bankruptcy restructurings and the proposed joint venture between Arch and Peabody's western assets have not changed the basin's trajectory.

Meanwhile, Seaport Global Securities LLC analyst Mark Levin wrote that the global coking coal market may have hit bottom given that prices have begun to rise.

"We would argue the worst is behind the met market, at least for now," Levin wrote. "Ironically, what's been driving met coal prices higher has little to do with improving underlying steel fundamentals or margins. In fact, steel company margins, whether in China, India, Japan, Europe or the U.S., remain very weak with steel prices under pressure due to weak end-market demand and iron ore prices remaining stubbornly high."

Additionally, there were a few developments in the bankruptcy court. Cloud Peak Energy Inc. filed its amended disclosure statement and amended Chapter 11 plan and encouraged its claim holders to approve the restructuring proposal. The coal producer noted that claim holders may receive smaller distributions if the plan is rejected and the case is converted into a Chapter 7 liquidation.

A federal court recently approved Blackjewel LLC's proposal to transfer its remaining permits and reclamation obligations on its eastern assets to an affiliate of FM Coal LLC so it can sell its Powder River Basin mines to Eagle Specialty Materials, an affiliate of FM Coal. The debtor had sought to transfer about 135 permits and obligations on its eastern assets to secure the deal on its western operations.

Upcoming events

Coaltrans: The World Coal Leaders Network conference began Oct. 20 and continues Oct. 21-22 in Lisbon.

Mining conference: The Future of Mining Americas conference will run Oct. 21-22 in Denver.

Earnings season: Arch Coal will announce its third-quarter earnings Oct. 22, the first among major coal producers.

MetCoke World Summit: The summit will be held Nov. 5-7 in Nashville.