Peabody Energy has lost US$173 million due to low natural gas prices and weak Chinese demand.
Natural gas prices averaged US$2.82 per million British Thermal Units through March, compared to US$4.26 mmBtu during the first quarter of 2014, prompting utilities to reduce their coal usage in favor of gas, Peabody said.
Domestic coal generation declined 14 % in the first quarter, while natural gas generation grew by the corresponding amount. As a result, Peabody said it will reduce its production estimate for 2015 by 10 million tons. The company had initially predicted American production of 190-200 million tons for this year.
“In the face of market headwinds, Peabody’s first quarter performance demonstrates the underlying strength of our business as ongoing cost improvements largely overcame lower coal prices and the impact of hedging,” Peabody Energy President and CEO-Elect Glenn Kellow said in a statement.
Company executives said they expect their Wyoming mines to remain competitive against natural gas, given the low production costs associated with Powder River Basin operations.
As in previous quarters, the Powder River Basin remained a bright spot for Peabody. Output for the first three months of the year was 41.9 million tons, slightly above 2014 levels.
Cost cutting measures helped grow the company’s profit margins at its western mines. Margins increased from US$4.19 a ton in the first quarter of 2014 to US$4.35 per ton through March of this year.
But the common theme of weak coal prices and high production costs once again presented a challenge for Peabody elsewhere. The company’s Australian operations were particularly hard hit.
Peabody’s Australian revenues were down from US$74 million in the first quarter of last year to nearly US$63 million this year. The company’s margins also declined from 22 cents a ton in the first three months of 2014 to minus-US$2.81 per ton this year.
Company executives noted Chinese thermal imports fell by 51 % on the quarter, while metallurgical imports fell by 14 %. They cited quality restrictions, tariffs and favorable taxes for domestic producers as the reason for the decline.
However, Peabody officials tried to sound a positive note about India, noting thermal imports to the South Asian nation rose by 16 million tons on the quarter, while metallurgical imports grew by 12 million tons.
“The impact of slowing Chinese demand has weighed on the market, yet we expect rising Indian coal imports, ongoing global urbanization trends and economic growth to lead to rising steel and electricity consumption over the next several years,” Kellow said.
Peabody revenues for the quarter were US$1.5 billion, compared to US$1.6 billion a year ago. The US$173 million loss compared to a US$44 million loss in the first quarter of last year.
Shares in Peabody were down 6 % to US$4.53 in afternoon trading. – Casper Star Tribune Communications