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Arch Coal the 4th Largest US Producer After International Coal Group Deal

|Includes: ARCH, International Coal Group, Inc. (ICO)
By IBISWorld Energy Analyst Justin Molavi

Arch Coal (ACI) is the latest company in the industry to dash for metallurgical coal as demand for steel in emerging economies quickly overpowers sales prospects in the United States.
ACI is purchasing International Coal Group (NYSE:ICO) for an all-cash offer that will create the fourth largest coal producer in the US with 11.2% market share, up from 8.9%. Before the acquisition, ACI concentrated its activities in thermal coal sales (which is used for electricity generation). The market for thermal coal (and thus electricity generation from coal) domestically has not grown as quickly as the demand for metallurgical coal (used in steel production) abroad in emerging economies. ICO was a prime takeover target given its metallurgical coal reserves and weak export infrastructure.
This is the latest acquisition in a string of purchases over the last year as other coal companies set their stake on metallurgical coal mines to meet emerging demand.
Metallurgical coal is now as attractive as ever. Increased demand from emerging economies focused on improving their infrastructure is driving coal mining firms to acquire mines that can produce metallurgical coal. Recent floods in Australia have pushed demand higher for metallurgical coal as supplies become even tighter.
Post-acquisition, the Coal Mining industry’s revenue is projected to grow 4.3% to 42.4 billion in 2011. This is revised from a previous growth rate of 2.6% during the same period. Most of the growth will come from exports to emerging economies.