Largest US producers cut costs in 2013

LED by Arch Coal, eight major coal companies saw costs increase by no more than 10% between 2009 and 2013.
Largest US producers cut costs in 2013 Largest US producers cut costs in 2013 Largest US producers cut costs in 2013 Largest US producers cut costs in 2013 Largest US producers cut costs in 2013

 

Sadie Davidson

In 2012, facing an unparalleled downturn in Central Appalachia thermal coal demand, Arch Coal shuttered three mining sites, limiting production at other operations and cutting 750 jobs.

Initially a costly move, Arch expected to take non-cash charges of about $US425 million ($A460 million) in Q2 of 2012 in addition to severance and related closure costs.

However, According to an SNL data analysis, Arch reduced its cost of coal sales per ton by 14.9% in 2013 compared to 2012, to $19.08/ton.

An Arch spokesman told SNL Energy Arch's effort to control costs in Appalachia led to a 4% reduction in unit cash costs in 2013 compared to 2012, despite 20% lower volumes from the region.

She said Arch expects costs to trend lower in 2014 with roughly $2/ton in cost savings in Appalachia compared to the previous year.

In 2013, Arch's Appalachian cash costs were $69/ton, with half of that volume being met coal.

SNL reported after cost of coal sales per ton rose by an average of 38.9% among the eight US coal companies between 2009 and 2012, none of the companies analysed in 2013 saw costs increase by more than 10%.

Alliance Resource Partners and Peabody Energy also reduced cost of coal sales per ton in 2013.

Alpha Natural Resources, which applied its own major cost-cutting initiative, reported only a slight increase of 0.27% in 2013 compared to 2012.

The question now rises, how long can coal producers continue to cut costs?

Attainment costs, recovery expenses for closed mines and the shift in focus to met coal assets contributed to the cost of coal sales per ton in previous years, but coal companies have generally handled those expenses so far.

One cost producers continue to face, especially in the Appalachia region, is environmental compliance. Alpha was recently hit with a $27.5million fine for breaching water pollution limits.

The increased cost of mine safety is another factor that leads to rising costs.

These costs hit the Appalachia region more so than other US coal producing areas because the average output of Central App coal mines, in terms of tonnage produced is less than the average rate produced in any other mining region.

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