Walter Energy sees higher coal output, lower prices in Q2

Coal producer Walter Energy Inc. (NYSE and TSX: WLT) said June 28 that its second-quarter production performance should be better than it had been in the first quarter, but metallurgical coal prices have dipped.

“Second quarter met coal production is expected to be solid and in-line with our 2012 guidance,” said CEO Walt Scheller. “Second quarter met coal sales volume is expected to increase over the prior quarter. However, revenues and income will be adversely affected by lower second quarter pricing across the industry and we anticipate approximately flat sequential quarterly costs per ton.”

Walter Energy, which has two big met coal longwall mines in Alabama, expects met coal production to be approximately 2.8 million tonnes for the second quarter of 2012, up more than 10% from 2.5 million tonnes in the second quarter 2011. Full-year 2012 met coal production is expected to be between 11.5 million and 13 million tonnes, with approximately 75% of annual production being high-margin hard coking coal (HCC) and 25% pulverized coal injection (PCI) product, which moves into the lower-price met coal market.

Incidentally, Walter started reporting its figures in tonnes last year, after taking over Western Coal, which had coal mining operations mostly in western Canada, but also in southern West Virginia and the United Kingdom. After that takeover, Walter also got a dual listing on the Toronto Stock Exchange.

Second quarter 2012 met coal sales volume is also expected to be about 2.8 million tonnes, up from 2.4 million tonnes in first quarter 2012.

Reflecting current trends in global coal markets, Walter Energy’s met coal prices for the second quarter 2012 will likely average about $200/tonne for HCC and $160/tonne for low-vol PCI, inclusive of the impact of previously priced carryover tons from past quarters. This will represent a decline of about 12% for HCC and about a 15% decline for low-vol PCI coal from the first quarter 2012. Costs per ton sold are expected to be around those for the first quarter 2012. The adverse effect of reduced pricing is expected to be partially offset by certain favorable non-operating gains.

April 1, incidentally, was the beginning of the current export year, with many new contracts based on that start date. As another example of the current met coal pricing trend, Australian coal producer Wesfarmers reported in April that price negotiations for the April-June 2012 quarter for met coal exports from its Curragh mine in Queensland’s Bowen Basin had been concluded with the majority of customers. For the quarter, the weighted average US$FOB for new contract prices of Curragh met coal (hard coking, semi-hard coking and PCI) decreased by about 11% as compared to the January-March 2012 prices. Curragh’s hard coking coal for the April-June quarter came in at about US$201/tonne FOB Queensland.

Walter is the world’s leading, publicly traded “pure-play” met coal producer for the global steel industry with strategic access to high-growth steel markets in Asia, South America and Europe. The company also produces thermal coal, anthracite, metallurgical coke and coalbed methane.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.