Arch expects to weather coal market pull-back

Arch sold 1.9mn short tons (1.73mn t) of coking coal in the third quarter, up by 200,000st year on year and 300,000st on the quarter. The firm secured a price of $105.72/st ($116.53/t) in the third quarter for its coking coal sales, based on a cash cost of $64.89/st. But this was down from $131.91/st in the second quarter and $114.89/st in the third quarter of 2018.

Expected production for the year remains unchanged from the firm's earlier estimates of 6.7-7.1mn st at a cost of $61-65/st. But the company forecasts its prices will fall further in the fourth quarter "due to lower average projected index-based pricing".

As demand has declined alongside steel production capacity cuts, particularly in Europe, Atlantic seaborne coking coal prices have fallen significantly from $173-216/t fob Hampton Roads last year for high-volatile A (HVA) type coal.

Argus assessed the daily HVA coking coal price at $148/t fob Hampton Roads yesterday, down from $211/t fob Hampton Roads at the start of this year.

Lower prices in 2020

Arch has secured 1.5mn st of coking coal sales to domestic buyers in 2020 at a fixed price of around $110/st, it said.

The volume is unchanged from 2019, but around 500,000st were sold at a fixed price of $124.44/st this year, with the remainder at "market-based pricing". The firm also committed to export 1.6mn st next year at index-linked prices, up from the 1.4mn st in export sales this year.

While Arch's coking prices for 2020 have fallen from 2019, the company appears to have fared better than some US mining firms heard to have offered discounts of $20/st or more in the recently concluded domestic price negotiations for 2020.

Output growth ahead

Arch is continuing to increase output and has taken advantage of the weakness in the US coal sector to expand its interests.

Its $360-390mn planned investments in the development of the Leer South mine will add an estimated 3mn st of HVA coking coal to its portfolio. Longwall mining at Leer South is scheduled to commence in the third quarter of 2021, Arch said.

The firm also entered into a definitive agreement last month to acquire 20mn st of HVA coking coal reserves directly adjacent to its Leer mine from Kentucky-based coking coal mining firm Blackhawk Mining. The deal is expected to conclude in the fourth quarter, adding nearly 24mn st in reserves to Arch's Leer mine and extending the life of the mine to the late 2030s, with the potential for further extensions.

Blackhawk idled operations at four underground mines in West Virginia earlier this month, pointing to falling prices on global coal markets as the reason for the shutdowns. Blackhawk is scheduled to exit a Chapter 11 bankruptcy protection in late October.