Coal news and updates

China’s move to impose a tariff on coal imports starting on Oct. 15 could have an “unquantifiable impact” on liquidity-constrained coal producers which have already suffered dramatic losses in bond valuations as declining coal prices pose a limitation on cash-flow generation.

 

The decision by China – the world’s top coal importer – to put a 3% tariff on anthracite and coking coal and 6% tariff on thermal coal reverses a near decade-long policy to remove barriers to imports, making a near-term rebound in coal prices increasingly less likely, analysts say.

 

“The timing of a met coal price rebound is becoming increasingly important for liquidity-constrained met coal producers Walter Energy, Alpha Natural Resources, Arch Coal,” said Morgan Stanley in a recent report led by metals and mining analyst Evan Kurtz.

 

Bonds of top U.S. coal producers have plumbed fresh lows over recent months as analysts increasingly warn of deteriorating fundamentals for the U.S. thermal coal markets, with concerns about the shift in power production to gas from coal, sharply reduced export volumes, and the implementation of mercury air toxic standards (MATS) for coal and oil-fired power plants continuing to have a negative impact on U.S. coal demand.

 

Bonds backing highly leveraged Arch Coal have lost as much as 50% in the past month alone, with its 9.875% 2019 notes falling to a record low of 38/40 this morning, from 79 on Sept. 10, according to sources and trade data.

 

Walter Energy 9.875% notes due 2020 are down 42%, to 28, from 49 a month ago. Alpha 6% notes due 2019 meanwhile are down 39%, to 52/54, from 71 on Sept. 10

 

 

Coal stocks plunged across the board Thursday amid a brutal sell-off in equities, with shares of Walter Energy  and Arch Coal both falling by 8% on the day. Shares of Walter Energy and Arch Coal have lost as much as 62% and 49%, respectively, over the past month.

 

With any near-term improvement in metallurgical coal pricing looking less likely, Walter’s ability to support its capital structure over the next 18 months appears increasingly questionable, said Robert Goodman, a strategist at Canaccord Genuity.

 

Secondary traders told LCD that the sector is generically down as much as seven points today, with “trading by appointment only” as market players are in price discovery mode.

 

“This is an unmeasurable negative for any credit with seaborne exposure, including Arch Coal, Alpha Natural Resources, Peabody Energy, CONSOL Energy and Walter Energy,“ said a trader.

 

Seaborne thermal coal prices have fallen significantly in the past year and now stand near their lowest levels in five years, according to analysts at Nomura, who expect the market to remain oversupplied in the medium term.

 

Citi analyst Brian Yu meanwhile said that the entire seaborne market may be impacted by the imposition of the tariffs but producers with direct exposure to China are likely to see the largest impact.

 

Among the names covered by Citi, Teck Resources and Peabody had the largest exposure to China in 2013 at 25% and 10% of total coal sales, respectively. Walter Energy does not break out sales to China specifically, but sales to Asia represented 27% of total 2013 sales. Arch Coal, Alpha Natural Resources and CONSOL Energy all had less than 20% sales to Asia, Yu says.

 

Based on the latest data from the Energy Information Administration, U.S. thermal coal exports to China totaled 83,940 short tons in first quarter of 2014, versus 697,392 short tons of met coal over the same period, according to Platts.

 

 

Source: http://www.forbes.com/