After months of decliningproduction and price weakness that spun some of the largest coal companies intobankruptcy, at leastone coal executive is telling investors the tide may have .
Jimmy Brock is the CEO of CNX Coal Resources LP, a master limited partnershipsponsored byCONSOL Energy Inc.that mines coal from the Northern Appalachia basin in Pennsylvania. In thesecond quarter of 2016, the mines reportedproduction levels at the highest levels they have been since the first quarterof 2015.
"The combination of rising gas prices, hot summerweather, and reduced production has resulted in a changing marketplace,"Brock said on a July 25 earnings call. "While we do not like to call thebottoms and tops in the coal markets,the month of May certainly felt like it could be a bottom. It feels like themarkets have now turnedand we expect pricing to follow."
CNX Coal went public a year ago and has operated throughsome of the toughest months witnessed by the coal sector. In addition tosecular decline asthe power industry shifted from coal to natural gas, the coal industry was surprisedby suppressed demand from a very mild winter.
"I seriously, seriously doubt that we'll have anotherwinter this year like we did last year," Brock said. "But we gotcaught last year not being prepared for that."
In addition to improved coal burn due to summer power needsin the U.S., Brock said exportprices are showing signs of substantial improvement.
"Looking forward, we expect the trend of deterioratingfinancial metrics to reverse as our employees continue to find efficiencies andinnovations while we began to see improvements in the marketplace," Brocksaid.
CNX Coal is already sold out for all of its production in2016. Assuming a run rate of 5.2 million tons per year, the partnership booked79% and 55% of its production for 2017 and 2018, respectively. That is comparedto about 60% and 35% contracting levels for upcoming years at the same pointlast year.
The improvement occurred despite geological challenges atthe Bailey and Enlow Fork mines. CNX Coal brought the Harvey mine online toadjust for the shortfall on a temporary basis.
"However, as more trains started to show up and ourmarketing team was able to book more export business, we decided to run Harveyon a more steady-state basis, even after the Bailey and Enlow Fork productionissues were resolved," Brock said.
Jim McCaffrey, senior vice president of coal sales at CNX,said on the earnings call that CNX loaded 605,000 tons into trains to leave theBailey complex the week before. He said demand pull "on a day-to-day basisis really strong."
Brock said high coal inventories at utilities — a drag oncoal prices — is expected to come down "relatively quickly." He alsoexpects there is "a lot of possibility" for natural gas prices totrend upward.
Higher gas prices or lower utility inventories could boostthe ability to negotiate higher coal prices. McCaffrey noted the company is "keepingour powder dry" when it comes to booking the remaining 21% of 2017 coaltonnage.
"We think there's a lot of potential in the marketplacefor improvement," McCaffrey said. "I personally think the market hasturned."
On the international front, McCaffrey said much of the coalwent to Asia and Europe. He said quite a few tons were shipped to India, in theneighborhood of 1.8 million tons, but he said there was no tonnage going toIndia in the second half of 2016 because of less attractive pricing for theremainder of the year and 2017.