Alliance Resource Partners LP's "impressive" second-quarter performance follows strong coal sales resulting from improvements in the domestic and seaborne markets, said Alliance President and CEO Joseph Craft.
The coal producer, which operates mines in the Illinois and Appalachia basins, reported increases to all major operating and financial metrics in the second quarter of 2018 compared to the second quarter of 2017 due to the strong sales volumes, Craft said on a July 30 earnings call. The partnership increased its full-year guidance for revenues, net income and EBITDA based on the strength seen in the first half of the year.
Alliance is "essentially sold out" for planned production in 2018 as it takes advantage of improved domestic and seaborne coal demand in the period, Craft added.
"Looking ahead, we anticipate market conditions should remain favorable for both domestic and international coal demand," Craft said. "We expect to grow our production another 5% to 6%, or approximately 2 million tons, in 2019 compared to 2018. Essentially all of this additional production will come from the Illinois Basin, targeted primarily for the export market."
About 11.1 million tons, or about 27% of Alliance's estimated shipments, are bound for seaborne coal markets, Craft said. Export demand for metallurgical coal has been particularly strong in the first half of 2018, he added, with booked commitments to deliver approximately 725,000 tons in 2018 already matching the tonnage Alliance delivered to that market through the entirety of 2017.
Craft said Alliance is also seeing signs that customer demand for domestic coal is improving. Utility coal stockpiles are down about 15% year-over-year, he said, setting up increased coal-buying activity as utilities look to replenish stockpiles in 2018 and secure open positions for 2019 and beyond. He said prices are up at least 10% in the Illinois Basin compared to last quarter.
"I believe that we are in balance as far as supply and demand. There's expectation that some utilities will be out looking for tons into 2018. I don't know that there's much supply out there for 2018, so we would expect that those utilities will be drawing from inventory," Craft said. "[W]e feel good about where the price curve looks relative to 2017, 2018 on the Illinois Basin pricing."