Alpha Natural Resources, Inc (NYSE:ANR) is choking on coking coal
Benchmark coking-coal prices have slid 56 percent from a quarterly-price of $330/ metric ton in the middle of 2011 to $145/ ton for the 2013, July-Sept period. This level is considered to be way below the marginal production cost of around $175-$185/ ton. However, the spot prices have been hovering below that particular level for quite a while now. This suggests that the actual marginal-cost may be much closer to $150 – $160/ ton. The one thing that is most evident is that at the global-benchmark price of 4145/ton, coking coal production in the United States is in the doldrums.
There are several companies that are most affected by changes in coking coal prices and Alpha Natural Resources, Inc (NYSE:ANR) is one of them. Walter Energy, Arch Coal and Peabody Energy are some of the other companies that are affected adversely by the depression in the coking coal sector.
Moving back to Swing Producer Status?
Between 2010 and 2011 there was elation in the coal market as healthier global coking-coal prices permitted U.S. producers to create a dent in the seaborne market. Before that, the American industry was just a swing producer. Halfway through 2011, coking coal players largely believed that the United States would maintain its position as a front-running producer and exporter and will not head back to a swing producer status. It all seemed good till 2012, which was when coking prices dropped below $200/ ton. In order to be relevant, the U.S. needs a pricing of $200/ ton. There are some optimistic stakeholders and analysts who believe that the prices of coking coal will do a rebound over the next 6-9 months.
What are Swing Producers?
A swing producer is generally a country that extracts more coal that it can actually consume. It is expected that the demand for steel will grow by around 60% over the next ten years. The blast furnaces that are used to make steel will use around 40 million-50 million tons of coking coal to churn-out close to 75M tons of steel. With this kind of growth in the steel and consequently the coking coal industry, there is no reason why America will be a swing producer.