Australian Met Operations Propel Peabody’s Performance

Peabody’s North Goonyella mine in Queensland exports 2.9 million mt/y of met coal extracted by a top-caving longwall method
During the second quarter of 2018, Peabody Energy reported a 4% increase in revenues to $1.31 billion driven by a 20% increase in Australian met and thermal coal sales. “Peabody’s diversified portfolio continues to generate substantial returns, led by 39% margins from the company’s Australian platform, as we capitalize on continued strength in seaborne metallurgical and thermal coal fundamentals,” said Peabody President and CEO Glenn Kellow.

Australian sales volumes totaled 7.9 million tons, including 2.9 million tons of metallurgical coal sold at an average price of $143.98/ton, and 2.9 million tons of export thermal coal sold at an average price of $78.68/ton, with the remainder delivered under a long-term domestic contract. Peabody’s Australian metallurgical coal segment generated revenues of $417.5 million, a 45% increase compared to the prior year, largely due to sustained demand for quality metallurgical coal and healthy seaborne pricing levels.

Vigorous seaborne thermal demand led to further strengthening in prices during the quarter, with Newcastle spot pricing reaching highs of approximately $116 per metric ton (mt) in the second quarter. Chinese thermal coal imports rose approximately 20%, or 19 million mt, through June compared to the prior year on sturdy industrial activity and an approximately 8% increase in thermal power generation. Domestic coal production has been unable to keep pace with the increased power generation and industrial demands, along with customer restocking.

India’s coal production has also been unable to keep pace with growing electricity demand, resulting in an 13% increase, or 9 million mt, in thermal coal imports through June compared to the prior year. Peabody reported that coal inventories at India’s power plants remain below targeted levels. In addition, ASEAN imports increased compared to the prior year on continued urbanization and general economic growth. Peabody expects this trend to continue as 56 gigawatts of new coal-fired power plants in 24 countries worldwide are expected to come online in 2018. The majority of new plants are located in the Asia-Pacific region, with additional plants announced in a number of other countries anticipated to come online in future years.

The strong performance from its Australian operations helped offset the impact of lower U.S. volumes. Revenue per ton increased modestly compared to the prior year, but the tonnage decreased 5%. Conditions for the U.S. coal market remains challenged, according to Peabody, as utility coal consumption declined 5% from the prior year, despite a 4.5% increase in total load. Natural gas and wind generation continued to rise, along with an increase in nuclear generation driven by the timing of refueling across nuclear plants. In addition, retirements continue to weigh on coal demand and account for an estimated 3% of the decline in year-to-date coal demand. PRB demand decreased 5% due to ongoing pressure from retirements and regional natural gas prices that continue to trade at a discount to quoted Henry Hub prices.

While domestic demand has weakened, U.S. exports have continued to benefit from strong seaborne pricing, with thermal exports through May up 48% compared to the prior year.

As featured in Womp 2018 Vol 08 -