Coal miners are reporting earnings and some interesting news is happening in their reports. Bloomberg has a piece that has the details.
Peabody Energy Corp., the top American supplier, has contracts for more than 90% of its coal from the Powder River Basin region next year and all of the power-plant fuel from its other U.S. mines. And Arch Resources Inc., the No. 2 producer, has lined up deals with utilities for all of its 2022 output from the basin at an average price that’s 20% higher than current spot prices.
Peabody (BTU) and Arch (ARCH) are locking in prices for future production. This has boosted their earnings. Both are higher on the day.
“It’s pretty much sold out,” Peabody Chief Executive Officer Jim Grech said Thursday during a conference call. “We only have a small portion left to be sold for 2022 and for 2023.”
Pretty much sold out of coal! Peabody is a $1.5 billion company. They are the largest coal miner in the US and they are sold out of stock!
With natural gas (UNG) still roughly double from where it was at the beginning of the year, power producers are looking for cheaper ways to fill the gap. Coal has been the big beneficiary. Now producers are securing contracts and getting top dollar.
Alliance Resource Partners LP, a coal miner that’s on track to ship about 32 million tons this year, has already locked in deals for 30 million tons next year and almost 16 million tons in 2023.
These coal producers haven’t seen this kind of demand for years and they want to take advantage while they can.
Arch’s thermal coal output for 2022 is “fully committed,” CEO Paul Lang said Tuesday, with an average price for Powder River Basin output of $16 a ton. That’s well above the $13.25 spot price last week, according to S&P Global Market Intelligence.
I’m excited to see what Ramaco and Consol have in store for tomorrow. I imagine both will follow suit and have secured long-term contracts at prices above spot. My hope is they will hold some back. If the big boys are all sold out, with demand holding the same, the price will have to come up.
Power plants with this kind of panic to lock in prices 20% above the current market rate and well into the future tells me these guys are very worried about supply. This means we could be facing shortages of power producing inputs. This translates to rolling blackouts come winter if power plants can’t source a supply. Certainly not something I want to hear this holiday season.
It also means that the inputs that will be available will be in great demand. This will easily push their prices higher. If power plants run out of coal, watch for the price of oil and natural gas to get bid.