A digest of some of the top insights that I’ve gathered from this week’s earnings calls. Full notes can be found here.
Met coal prices unsustainable, but will remain weak throughout 2014
“current price levels are unsustainable for much of the 325 million tons of seaborne met production in operation today. Yet despite some of the supply corrections that have taken place, we expect metallurgical markets to remain soft throughout 2014. In order to successfully navigate these markets, we’ve elected to proactively scale back at metallurgical coal volumes to go further this year.”
Thermal coal is rebounding though
“One market where recovery is evident is the domestic thermal market. U.S. electric generation hit record levels in January and February, benefiting from a cold winter. In fact we may see power demand increase in 2014 after three years of decline.”
Met production shut down, but can come back to market relatively quickly
“I think on the flip side when the market does come back, we will have the opportunity to ramp these mines back up rather quickly”
Still 15-20-25 MT oversupplied in Met coal, wouldn’t take too much to get market back to balance
“I mean I have said 15 million to 20 million in the past; I mean I would say today, it’s probably in that 15 to 20, 25 range plus or minus. We are encouraged over the last week or so about some of the rationalization that we are hearing about, not in Australia, U.S. and Canada, let’s call it 5 million to 10 million tons. We think that’s encouraging. We think the 3% growth in steel demand is encouraging and we think thing is going to balance itself out. And we think we are not forecasting any material improvement in the met market this year but what could potentially accelerate that is if you start seeing more and more people pulling production off. And we think at the second quarter benchmark of 120, the fact that the Australian dollars move back up to $0.93, $0.94, those guys are probably looking at where they might trend some of the production. So, on a 325 million ton market, it wouldn’t take a whole lot to balance this thing pretty quick.”
I think Met has bottomed out
“I think we have bottomed out. And I think given where people’s cost structure are and the fact that you’ve got a large percentage of suppliers in the world market that have a cost structure that don’t work, something’s got to change.
And I think you are starting to see the early part of that with some of these cut backs. I don’t know that we have a magic number out there, but clearly as Paul indicated, we’ve set our self up in a manner that allows us to respond pretty quickly.”
We’re not bringing back volume unless it’s sustainable
“we are not going to bring volume back on for a quarter or two improvement, we want to see something that is more multi-year.”