St. Louis-based Peabody Energy (NYSE: BTU) on Jan. 27 reported full-year 2014 revenues of $6.79bn, leading to Adjusted EBITDA of $814m.
The company reported coal sales of 64.3 million tons for the fourth quarter of 2014, with a net loss of $513m, against coal sales of 64.6 million tons and a net loss of $561.2m in the fourth quarter of 2013. For the full year 2014, Peabody sold 249.8 million tons of coal and had a net loss of $777.3m, against 251.7 million tons sold and a net loss of $512.6m in 2013.
“Peabody continues to drive improvements in safety, costs and productivity as we respond to challenging market conditions with additional cost reduction programs, capital efficiency initiatives and non-core asset sales,” said Peabody Energy Chairman and Chief Executive Officer Gregory H. Boyce. “While we expect coal fundamentals to improve over time, we are implementing further steps in our comprehensive plan to improve competitiveness and maintain adequate liquidity.”
2014 revenues totaled $6.79bn compared with $7.01bn in the prior year primarily due to sharply lower realized pricing in Australia. Sales volumes were consistent with prior-year levels as higher U.S. and Australian shipments offset a reduction in Trading and Brokerage volumes.
U.S. Mining revenues of $4.02bn were in line with the prior year, as an increase in Western shipments offset a decline in average realized pricing, primarily related to contract reopeners in the Midwest. Peabody increased Southern Powder River Basin volumes to the highest annual level since 2011, and the flagship North Antelope Rochelle Mine in Wyoming achieved record production levels, even as rail issues constrained industry shipments.
Australian revenues of $2.67bn reflected a 16% decline in revenues per ton, partly offset by a 9% rise in shipments. Australian volumes increased to a record 38.2 million tons, including 17.6 million tons of metallurgical coal at $93.61 per ton and 13.0 million tons of export thermal coal at $68.02 per ton, with the remainder delivered under domestic thermal contracts.
“2014 was a turbulent year for the coal markets as slowing near-term demand growth and strong seaborne supplies resulted in continued coal price declines,” said Peabody Energy President and CEO-Elect Glenn Kellow. “We would anticipate seeing catalysts for market improvement including stable seaborne metallurgical supply, the addition of new global coal-fueled generation and coal import growth in India and Southeast Asia. In the U.S., we expect Southern Powder River Basin consumption to rise in 2015 despite lower expected natural gas prices, as rail performance improves and utility coal conservation measures are eliminated.”
Within global coal markets:
- Peabody projects 2015 metallurgical coal import demand increases will outpace supply growth for the first time since 2011. Seaborne met coal supply is expected to be flat in 2015 as modest Australian growth is offset by North American cutbacks. Approximately 25 million tonnes of seaborne metallurgical production cutbacks have been announced over the last 12 months, with an estimated 15 million tonnes yet to be realized by mid-2015;
- Chinese coal imports declined 35 million tonnes to approximately 290 million tonnes in 2014 on flat coal generation and slowing steel production growth. Peabody projects Chinese import growth to resume over time as domestic production is rationalized and new infrastructure projects are advanced;
- In India, coal imports rose more than 25 million tonnes in 2014 as higher economic growth led to increased coal demand. Coal generation improved 13 percent in 2014, resulting in thermal coal imports rising 20 million tonnes through December. Metallurgical coal imports increased 6 million tonnes last year, and additional infrastructure build out is expected to support continued import growth;
- The first quarter 2015 metallurgical coal benchmark for high-quality low-vol hard coking coal settled at $117 per tonne, down $2 per tonne from the prior-quarter price. The mid-vol hard coking coal price increased to $116.50 and the benchmark low-vol PCI settled at rollover pricing of $99 per tonne, which together represent the majority of Peabody’s Australian metallurgical coal exports; and
- U.S. coal exports declined 17% to approximately 100 million tons in 2014, with metallurgical export declines accelerating late in the year. 2015 U.S. exports are expected to decline 20 to 30 million tons, with metallurgical exports falling about 10 million tons.
Based on current global economic growth forecasts, Peabody expects annual global coal demand to rise 500 million tonnes by 2017. Over this same period, approximately 225 GW of new coal-fueled generation are expected to be built, supporting an estimated 8% to 10% increase in seaborne thermal coal demand. The World Steel Association projects global steel use will rise 2% in 2015. Peabody expects seaborne metallurgical coal demand to rise 10% to 15% over the next three years, led by ongoing urbanization and industrialization in Asia.
Within U.S. coal markets:
- Coal accounted for approximately 40% of U.S. electricity demand in 2014. Utility coal consumption was stable over 2013 despite mild weather in the second half of the year and an estimated 25 million ton impact from coal conservation measures related to rail performance;
- Southern Powder River Basin stockpiles ended 2014 at approximately 50 days. Inventories declined over the prior year, while stockpiles increased in the fourth quarter due to mild weather and stronger rail performance; and
- 2015 U.S. coal demand is expected to decline 50 to 60 million tons based primarily on lower projected natural gas prices. However, Peabody projects Southern Powder River Basin consumption to increase 10 to 20 million tons on improving rail performance and elimination of coal conservation measures.
Peabody expects coal’s share of U.S. electricity demand to be approximately 40% in 2017, and utility coal usage is projected to increase 10 to 30 million tons over 2014 levels. Over that time, Southern Powder River and Illinois Basin demand is anticipated to rise 50 to 70 million tons due to a recovery in natural gas prices, increasing coal plant utilization and basin switching that more than offset expected unit retirements.
Peabody said it continues to build on core strengths while preserving a leading position in the higher-growth, low-cost basins in the U.S., and serving the highest-growth Asian markets through the company’s Australian platform.
Approximately 5% of Peabody’s projected 2015 U.S. production is unpriced, with 2016 production approximately 45% to 55% unpriced based on expected 2015 production levels.
2015 Guidance Sales Volumes (in million tons): U.S. 190–200; Australia 35–37; Trading & Brokerage 20–28; Total 245–265.
In 2015, higher Southern Powder River Basin deliveries will be partly offset by reduced Colorado volumes, which are expected to be approximately 4 million tons per year. Specific projects include the Gateway North underground mine extension in Illinois to replace production from the existing operation, the Wolf Creek mine development in Colorado, and continued investment in safety and productivity improvement activities.
Peabody Energy is the world’s largest private-sector coal company and a global leader in sustainable mining, energy access and clean coal solutions. The company serves metallurgical and thermal coal customers in more than 25 countries on six continents.