Cloud Peak Energy Inc. (NYSE:CLD) Q1 2018 Earnings Conference Call - Final Transcript

Apr 26, 2018 • 05:00 pm ET

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Cloud Peak Energy Inc. (NYSE:CLD) Q1 2018 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

[Operator Instructions] Our first question is from the line of Lucas Pipes with B. Riley FBR. Your line is open.

Analyst
Lucas Pipes

Hi, good afternoon everybody.

Executive
Colin Marshall

Hi, Lucas.

Analyst
Lucas Pipes

Heath, or Colin, I wanted to follow up a little bit on the industry comments that you shared in the introductory remarks, you spoke of fierce competition, obviously there is the usual dynamics with weather and gas, but can we talk a little bit more about the structural issues, where do you see coal burn this year versus last year and then importantly when it comes to retirements looking out to 2019 and 2020, what is on the horizon and how does it impact the PRB? Thank you.

Executive
Colin Marshall

So I think as we said in the remarks there is clearly utilities have been holding off buying coal as coal to be bought for the remainder of this year. And at the moment the utilities have come out for pricing. There has not been that many and obviously with PRB producers such as ourselves having excess capacity to fill in the second half of the year. As you can imagine the pricing is very competitive. So that is the dynamic at the moment. I think as the stockpiles have come down a long way from last year there is a potential with gas inventories lower.

If there is an early start to summer and a hot summer, big cooling demand there to be a lot of burn of coal just as we saw in January, and that could bring the utilities into the market in a strong way. The other side of that is that if there is a very mild summer then that would leave them with buying less and that wouldn't be good for oil producers. So that is the dynamic we are in. The reality is the industry has changed massively from where it was five or six years ago, when utilities used to know what they were going to burn through their coal plants and would buy accordingly. There is a lot more variability, which is what we are coming to terms with. We are optimistic that the rapid rate of closures we have seen in the last couple of years is actually slowing down and that will actually give them some opportunity for the supply and demand to come into balance and give more sustainable margins to producers.

That has not occurred yet, but we are closer to being in that position than we were this time last year would be my estimation. But equally we have to recognize there is an awful lot of gas coming on. How much of that is balanced by exports and the need to continue investing capital to keep production going will play out in the next year or two as those markets mature and the economy develops and exports develop. But that is -- we are in a very dynamic market and we have got to see how that occurs. We are optimistic that