Joy Global, one of the largest mining companies in the world, released a forward-looking overview for the market and the company along with their 2012 results.Joy’s is planning for the domestic coal market to be “structurally smaller and significantly dislocated market.” U.S. markets “experienced a significant loss of coal demand to natural gas for power generation,” in which “The share of power generation from coal dropped from 43 per cent to 33 per cent by April of 2012.”
Joy executives expect continued weakness in domestic coal demand, particularly in the demand for Central Appalachian coal, “until natural gas prices rise above $4.00 per million BTUs.”
Meanwhile, slowing growth in China has reduced that nation’s demand for coal this year. The coal market was faced with an imbalance where “demand growth was almost flat…while domestic production continued to increase, and stockpiles rose to maximum levels.”
While reduced demand from these two major markets played a role in coal’s decline, that only accounts for half the story. Joy singles out Australia for returning mines to production, which helped spur a supply surplus “that has pushed the prices of many commodities down to the marginal cost of production.” Even after China halted domestic consumption, there was still too much excess supply “from Australia and from U.S. producers looking for export markets” to support imports.
While the firm sees some green shoots for coal, like increased imports from India and more power generation from coal in Europe and Japan, they’re predicting a gloomy outlook for coal in the year ahead: more of the same.
CEO Mike Sutherlin declared that the company “expects the decline in coal capex to extend into 2013, and thus be essentially flat.”
On the foundation of this outlook, Joy has lowered its expectations for 2013 EPS to a range of $5.75-$6.35 from $6.73.
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