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Relenting pandemic and rebounding steel coal demand push Arch to profits

Relenting pandemic and rebounding steel coal demand push Arch to profits

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CREVE COEUR — The loosening grip of the coronavirus pandemic and a recovering demand for coal — particularly the kind used for steelmaking — generated strong quarterly earnings for Arch Resources, the company reported Tuesday.

The Creve Coeur-based coal giant reported more than $594 million in quarterly revenue for the three-month period ending on Sept. 30 — a 55% increase from the $382 million seen in the same period last year.

Profits jumped to $89 million, compared to a $191 million loss last year.

The company attributed the turnaround to an “ongoing rebound in global steel production” that has driven strong demand and prices for metallurgical coal, used to make steel.

Since last year, the company has embarked on a “strategic pivot” toward coal for the steel industry, called “coking” coal, and away from sagging demand in the electricity sector.

Market conditions have made it a great time to cater so heavily to steelmakers.

Globally, the company said steel production is up almost 11% compared to 2020 levels, and up more than 6% from the pre-pandemic conditions of 2019. CEO Paul Lang called the swing “an incredible snapback,” on a Tuesday morning call with investors.

He said that a “mismatch” of supply and demand has further bolstered Arch’s hand, since global coking coal supply is lagging after years of under-investment from the industry, and constrained by the long time required to develop new mines. For example, coking coal shipments from Australia, the U.S., and Canada — the three largest exporters of the resource — are down by 20 million metric tons, compared to two years ago.

But Arch has been able to buck that trend, and has begun instead to ramp up production at a new metallurgical coal mine in West Virginia — a long-awaited development that has enabled the company to boost output at a time that it can cash in on soaring prices. Company leaders said Tuesday that the August start-up of the Leer South mine marked “the most momentous” news for the company in the last quarter.

The company said it sold coking coal for $137.99 per ton in the quarter — up by nearly 44% compared to the previous quarter, and an 84% leap over the last year. And in certain conditions, the company can fetch even more for its “principal product,” reporting current assessments of $390 per metric ton for prompt deliveries of metallurgical coal.

Arch said power-sector coal, its “legacy” business, is also enjoying an upswing in prices, which climbed to more than $30 per ton in the last quarter from about $18 per ton a year earlier.

But company leaders said Arch remains committed to its plan to “skinny down” power plant coal operations, and only make “subsistence-level” investments necessary to keep mines running and generating money for their eventual closure and reclamation. They expect the market for coal-fired electricity to continue to shrink, longer-term.

“Nothing has changed in the macro picture, in our view,” Lang said. “The end game remains the same.”

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