Arch Coal (ACI +3.5%) moves higher after its Q2 earnings loss came in better than expected as operating costs per ton fell 7%.
Q2 sales fell 7% Y/Y to $713.8M, missing analyst consensus, but operating costs per ton fell to $20.55 from $21.19.
ACI lowers its FY 2014 sales volume targets, including cutting its thermal sales volumes forecast to 124M-130M tons from 124M-132M tons to reflect the effects of transportation bottlenecks and the impact of a fall in steel production.
McCarthy says the agency made changes when developing its rules on mercury pollution in 2012 after utilities complained, and says she "wouldn’t be surprised if we made significant” revisions to the carbon proposal.
McCarthy notes "confusion" around the targeted 30% emission cuts, saying it’s not a goal of the plan but an estimate of what the EPA thinks can be achieved.
The problem is that owners can only cut so much of a facility's emissions by increasing efficiency, so a lot of the reduction could have to come by "going outside the fence," such as by deepening the use of renewable energy, improving grid efficiency and encouraging customers to use less electricity.
Trying to compel operators to rely on such external measures could run afoul of what the government is allowed to do under the Clean Air Act.
The D.C. Court of Appeals upholds EPA regulations requiring power plants to limit emissions hazardous air pollutants, siding with the EPA's determination that its regulations were appropriate and necessary.
The 2-1 court majority rejects arguments the agency should have considered the costs of its regulations before moving forward, while the dissenting judge warns the costs of the EPA regulations would amount to more than $9B/year.
The price for met coal used to make steel has dropped to $125/ton from an already-low $132/ton, and Citigroup’s Brian Yu thinks Alpha Natural Resources (ANR) and Walter Energy (WLT) stand to get hurt most among coal producers while Alliance Resource Partners (ARLP) and Peabody Energy (BTU) can best withstand the slide.
Citi retains its Sell rating on ANR because of several marginal mines that risk closure in a low commodity price environment and from over-aggressive consensus estimates; the firm cuts its WLT 12-month target price to $14 from $17.50 given the multiple compression impact from met pricing.
Meanwhile, Nomura prefers Consol Energy (CNX) and raises its 2014 EPS estimate to account for high gas production growth and upside from improved unit costs and gas price upside.
Cowen downgrades Alpha Natural Resources (ANR), Teck Resources (TCK) and Walter Energy (WLT) to Market Perform from Outperform, believing improved sentiment in the coal markets (particularly thermal) has led stocks significantly ahead of fundamental improvement.
The firm thinks investors may migrate to Peabody Energy (BTU) based on favorable exposure to international met operations and an improving PRB market, but see it also near fair value; it favors thermal-focused names Cloud Peak (CLD) and Alliance Resource Partners (ARLP).
Supreme Court justices today expressed sympathy for the EPA’s approach to air pollution that crosses state lines.
The rule that would curb emissions from coal-fired power plants in 28 states - struck down by the D.C. Circuit Court of Appeals and being tested by power companies, states and miners - has never taken effect, but it would force companies to either shutter old plants or invest billions of dollars in pollution-control technology.
The court’s four Democrat appointees, at times joined by Chief Justice Roberts and Justice Kennedy, suggested the EPA had adhered to the language of the Clean Air Act; only Justice Scalia seemed convinced the rule could be unfair to some states.
Alliance Resources Partners, L.P. is a diversified producer and marketer of coal to United States utilities and industrial users. It operates ten underground mining complexes in Illinois, Indiana, Kentucky, Maryland and West Virginia.