Metallurgical coal markets began to rebound in June with the uptick in steel production and prices and should continue to benefit from increased steel activity, according to Alpha Natural Resources, which reported results Monday.

 

Despite taking a hit in its second quarter and six-month results due to a decline in metallurgical coal shipments and pricing, the company is upbeat looking forward.

 

"While global business conditions certainly aren't anywhere near where they were at this time last year, we have seen encouraging early signs of a turnaround in the steel markets and renewed interest from coal buyers, which had been mostly absent to this point," Michael Quillen, Alpha's chairman and CEO, said in the company's earnings statement.

 

"A generally weak quarter for metallurgical coal ended on a high note with June shipments up 600,000 tons from May levels. Positive signals from the steel, coke and coking coal markets colored the back end of the second quarter and have extended into the current quarter," said Alpha.

 

As a result of the improvement in the metallurgical coal market, the company is reviewing its sales plans. "Alpha believes that, as consumption levels for steel rise from current recessionary levels, margins for high-quality metallurgical coals will be better in 2010 than currently.

 

Consequently management is evaluating whether to withhold metallurgical tonnage originally projected for production in 2009 to await more stability in market demand and pricing," the company said. "As of mid-June, Alpha had less than half a million tons of metallurgical coal committed and priced for 2010, with approximately 9.5 million tons open for contract. The company anticipates settling some of its 2010 open tonnage in the second half of this year. There have been increasing expressions of interest from buyers recently, but the timing of settlements remains unpredictable."

 

Demand and pricing weakness in the metallurgical coal market hurt Alpha's second quarter results. "Coal margin per ton, a key profitability measure for the company, declined 33 percent in the quarter just ended, as the company's higher-margin metallurgical shipments slipped and pricing declined approximately $30 per ton from last year's level, offsetting a 37 percent improvement in thermal coal pricing period-over-period," Alpha said.

 

Metallurgical coal sales volumes plunged 54% to 1.473 million short tons from 3.237 million short tons in Q2 2008 and dropped 27% from Q1 2009 sales volume of 2.024 million st. For the six months ended June 30, metallurgical coal shipments are down 41% to 3.498 million st from 5.973 million st in the same period last year. Average revenue was down 24% to $92.46/st from $122.06/st in Q2 2008 and slipped 11% from Q1 2009's $104.47/st. For the six months, average revenue is down 6% to $99.41/st from $105.60/st in the year-ago period.

 

For the second quarter, Alpha saw net income drop 77% to $15.4 million, from $67.1 million in Q2 2008. Total revenue dropped 45% to $386.2 million from $701.8 million in Q2 2008. Coal revenues fell 44.8% to $333.9 million from $604.7 million in Q2 2008

 

For the six months, total revenues fell 26.9% to $872.9 million from $1.195 billion last year. Coal revenues were down 26% to $758.3 million from $1.027 billion last year. –Platts