Arch Coal Inc. (NYSE:ACI) Q2 2020 Earnings Conference Call - Final Transcript

Jul 28, 2020 • 10:00 am ET


Arch Coal Inc. (NYSE:ACI) Q2 2020 Earnings Conference Call - Final Transcript


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Paul A. Lang

markets remain very much in a trough, there are some positive signs. Chinese seaborne imports are up strongly year-to-date. North American buyers have just issued RFPs on their usual timeline and sales inquiries are on the rise. On a less positive note, coking coal prices remain at levels we view is unsustainable, even after a modest bounce in recent days. Premium High-Vol A coal, our primary product, is currently being assessed at $109 per metric ton, which is a $65 metric ton lower than the average in 2019.

On the supply side, production is coming offline fairly quickly. Although, we believe more cuts will be required to balance the market. Many of these cuts will likely come from the higher cost producers in North America, which represents the high end of the global cost curve. We believe that more than half of the U.S. output is cash negative at the current coking coal prices and at least one analyst has suggested that half of all global coking coal production may fit that same description.

In addition, we're seeing supply cuts in every other producing country, including the largest supply source, Australia, where weak prices, high-profile operational outages and limited capital spending in recent years is constraining outputs.

Moving to the legacy thermal business. The market environment remains intensely challenging. Arch expects U.S. thermal demand to decline by 130 million tons in 2020, following the nearly 100 million ton decline in 2019. Making the situation still more challenging, stockpiles at U.S. power plants are at an all-time high based on days of supply. Along with this, anemic international pricing is preventing most of U.S. thermal producers from participating in the seaborne market in a meaningful way. As I noted, Arch has taken aggressive actions across the organization to drive down costs and compete in this new market reality.

Looking ahead, we believe we have the right mix of attributes to weather protracted[Phonetic] period of market weakness, including low-cost coking coal assets, a skilled workforce, high-quality products, a solid book of metallurgical business, and a proven track record of operational execution. Moreover, we believe these same attributes will put us in a strong position to capitalize as the global economy recovers and as the world returns to an expansion mode.

Last Friday, testimony concluded in the preliminary injunction hearing with the Federal Trade Commission in St. Louis related to the FTC's attempt to block our proposed joint venture with Peabody Energy. I want to thank the customers, the employees and the team of people that have supported us through the process. Closing arguments are scheduled to take place on August 10 and we hope to have a decision from the court by the end of the quarter.

I remain confident in the ability of the joint venture to deliver significant cost savings and to position the JV to better compete with natural gas and subsidized renewables. This would benefit all of the stakeholders, including our customers and employees. Given the ongoing litigation,