* Consol idling two mines to lower production
* Cites low global steel demand
* Coal company stocks drop
By Steve James
Sept 4 Coal miner Consol Energy Inc will
temporarily idle one of its biggest mines due to weak global
demand for steel-making coal, which has sent prices tumbling,
the company said on Tuesday.
Consol's stock fell almost 4 percent, weighing on shares of
other producers of metallurgical, or coking coal, which is used
to fire blast furnaces.
Wall Street analysts gave dismal outlooks for the sector,
noting the precipitous drop in spot prices for metallurgical
coal from around $225 per tonne two months ago, to around $160
per tonne now.
Analyst Dan Scott, of Dahlman Rose & Co, cut the investment
ratings for Consol's rivals Peabody Energy, Alpha
Natural Resources and Walter Energy to "hold"
from "buy." He said they were the most exposed to weak
metallurgical coal prices and he also cut Arch Coal's
stock price target.
"Global steel demand is under pressure and as a consequence,
raw materials used to make steel are in less demand,"
Pittsburgh-based Consol said in a statement.
It said it will temporarily close its Buchanan mine in
southwestern Virginia in response to weak conditions in its
export markets in Asia, Europe and South America.
Consol said it will also idle at least a portion of the
Amonate Mining Complex in southern West Virginia.
Buchanan produces about 5 million tons of metallurgical coal
per year -- just less than 10 percent of Consol's total coal
The idlings are expected to last for 30 to 60 days, said
Consol, which had previously idled operations at Buchanan for a
week in July.
"Buchanan's relatively high margins make that idling
particularly impactful to estimates," said analyst Meredith
Bandy of BMO Capital Markets.
"Amonate is just ramping up production so it is not a huge
impact to estimates; however, it is unusual to put a project
under review mid-ramp and probably reflects deepening
uncertainty on the long-term prospects for met coal," Bandy
She said BMO believes the trend is negative for all
metallurgical coal producers, but specifically high-cost
producers, such as Arch and Alpha.
Six weeks ago, Consol's second-quarter profit missed Wall
Street's expectations as revenue dropped 8 percent from a year
earlier and the average realized price for its coal fell 12
Thermal coal prices have also plummeted this year as demand
from electricity producers slumped, with some utilities turning
to cheaper natural gas. That has forced many coal companies to
cut production and one company, Patriot Coal, has
filed for bankruptcy protection.
In afternoon trading on the New York Stock Exchange, Consol
shares were 3.8 percent lower at $29.05. Alpha Natural Resources
fell 5.8 percent to $5.59, Arch Coal lost 4.5 percent at $5.83,
Walter Energy was down 4.8 percent at $31.10 and Peabody Energy
was 2.8 percent lower at $21.01.