Walter Energy, Inc (NYSE:WLT) losing energy very fast
This year, luck seems to be keeping coal miners a barge-pole distance away. Coal prices have remained low. Despite the fact that mining companies have been making every effort to cut costs, coal stocks have continued to suffer. This year, Walter Energy, Inc (NYSE:WLT) seems to be the worst-hit company and its stock is down over 57%. Are its worries going to bid goodbye anytime soon?
Why Walter Energy is down so much
Somehow companies such as Alpha Natural Resources, Arch Coal Inc and Peabody Energy Corporation have not borne the brunt as much as WLT has and why exactly is this the case? The answer is a simple one really. The difference is that Walter Energy, Inc (NYSE:WLT) is a pure metallurgical coal play, while the other companies produce thermal coal in addition to met coal. Along with iron ore and steel prices, met coal has also tumbled down. Europe’ economic downturn, China’s slowdown and a glut of produce are not really indicators for a rise in prices. Moody’s also downgraded WLT with a negative outlook. The former stated that the ongoing demand and supply situations will not support any met coal price increases at least for the next few quarters.
What is metallurgical coal?
Metallurgical coal, also known as coking coal is one of the primary inputs in steel production. There are numerous varieties of coal ranging from lignite to anthracite. The one property that sets coking coal in a different league from all other coals is its caking ability. This is the one property that is paramount in steel production. Coke is produced when coking coals are heated in a coke oven. As the temperature of the coal rises, it attains a plastic form and fuses before it re-solidifies into coke particles. This is called the caking process.
The qualities of the coking coals that have been used determine the resultant coke quality. Operating conditions in the coke plant are another important factor that can affect quality. Steel producers are the main customers of high-quality coking coals. They require these coals to increase productivity of all their blast-furnace operations. And so, when the demand for steel drops it has a negative impact on profitability in the metallurgical coal sector as well.