UPDATE 2-Consol sees no respite from weak met coal demand
Oct 25 (Reuters) - Coal and natural gas producer Consol Energy Inc said earnings would be hit through the fourth quarter due to the suspension of several coal mines, with the company warning that weak metallurgical coal demand would carry on until next year.
Consol, like most other U.S. coal producers, has cut output in response to weak coal prices, which fell as much as 20 percent in the first half of this year.
It also lowered its estimate for full-year coal sales volumes, hit by the suspensions and falling demand for metallurgical coal, or coal used in steel making.
The company expects met coal sales volumes to fall further in the fourth quarter. Met coal accounts for 13 pct of the company's overall sales volumes.
Coal producers across the world have taken a hit from excess supply and low demand for steel-making coal due to slowing growth in China, the world's largest consumer of steel.
U.S. coal companies, in particular, have also been hit by power producers switching to natural gas from more expensive thermal coal.
A number of coal companies including Alpha Natural Resources Inc, Walter Energy Inc and Peabody Energy Corp have shuttered production in the face of weak demand.
Consol said it does not expect the steel market to recover until the second quarter of 2013. It expects fourth-quarter low-volume met coal sales to fall by 25 percent to 600,000 tons from the last quarter. High-volume met coal sales are expected to fall by 28 percent to 500,000 tons.
The company, however, expects thermal coal sales to rise by 2.2 million tons over the 10.7 million it sold in the preceding quarter.
Consol said the potential return of normal winter weather and a strengthening natural gas price would help domestic thermal markets. The company said it recently priced over 3.5 million tons of thermal coal at or in excess of $60 per ton.
A ton of U.S. coal that sold for $68.75 in January was selling at $54.50 in July. Prices have crept up since then to around $60.25, according to industry newsletter Coal & Energy Price Report.
Consol shares, which have dropped 16 percent in the last 12 months, were down 2 percent at $34.04 on Thursday on the New York Stock Exchange.
Consol posted its first quarterly loss in five years hurt by the suspension of several mines.
The company produced 11.6 million tons in the third quarter, much lower than the 14.7 million tons it produced last year.
Consol said its quarterly earnings would have been an estimated $53 million higher, but for an outage at its Enlow Fork and Bailey mines in Pennsylvania.
Production at the mines was affected by the collapse of two conveyor belts that move coal to a preparation plant. The company expects the mines to return to normal production at the beginning of the fourth quarter, helping its earnings.
CRT Capital Group analyst Kuni Chen expects Consol to return to profitability in the fourth quarter.
"The conveyor belt incident cost them 20 cents per share in the third quarter, that should return in the fourth quarter," he said.
Consol said its flagship Buchanan mine, idled last month, is expected to restart on Nov. 5. The Amonate mining complex, also idled last month, is likely to remain shut this year.
The company expects costs per ton to decrease as its mines return to more normal schedules.
Consol's net loss was $11 million, or 5 cents per share, in the third quarter, compared with a net income of $167 million, or 73 cents per share, a year earlier.
Revenue fell 24 percent to $1.16 billion.
The company said it will continue to sell non-core assets. It has generated $224 million in cash so far this year from sales of non-revenue producing assets.
The company expects to end the year with no cash on its balance sheet after investing a projected $1.5 billion in coal and gas projects.
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