16 Nov

Coal: A Key Talking Point in Steel Companies’ 3Q16 Earnings Calls

WRITTEN BY Mohit Oberoi, CFA

Steel companies’ 3Q16 earnings calls

Seaborne coking coal prices (KOL) (TCK) have been on fire this year, tripling since the beginning of the year. The issue of rising coal prices was a key talking point in steel companies’ 3Q16 earnings calls. Let’s see what the steel companies had to say about this.

Coal: A Key Talking Point in Steel Companies’ 3Q16 Earnings Calls

United States Steel

During its 3Q16 earnings call, United States Steel (X) said it has annual coal requirements of 6.5 million–7.0 million tons in US operations and approximately 2.0 million tons in European operations.

Following its 3Q16 earnings release, the company said that some of its coal contracts “involve both supply and price certainty that extend beyond the current year.” This basically means that these contracts may not be affected by the big spike in coal prices. However, the company didn’t provide information on what percentage of its annual coal contracts is under these fixed contracts.

ArcelorMittal

According to ArcelorMittal (MT), its coking coal inventory is around two and a half months. The company also provided crucial updates on its annual coking coal requirements. According to MT, it uses about 35.0 million metric tons of coking coal annually. Of that, only 6.0 million–7.0 million metric tons comes from its captive mines. The company buys 5.0 million metric tons of coking coal under annual contracts in the United States. The remaining 24.0 million metric tons are almost evenly distributed between spot and quarterly pricing.

During its 3Q16 earnings call, AK Steel (AKS) tried to allay some of the fears related to higher coking coal prices. James Vasquez, the company’s CFO (chief financial officer) said the company started “negotiations early” for its coking coal contracts. He also added that higher coking coal prices are “not a major concern at this point.”

In the next part, we’ll see why steel companies expect their performances to fall in 4Q16.

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