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Why Did Arch Coal’s Shipments Fall in 4Q16?

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Shipments by segment

Arch Coal (ARCH) owns and operates mines in all three major coal mining regions in the US. However, the majority of the company’s shipments come from its low-cost mines located in the PRB (Powder River Basin) region. Previously, ARCH reported its shipments under its PRB, Appalachia, and Other segments.

Starting in 4Q16, ARCH began reporting its shipments by the type of coal sold rather than by the region of coal production. In this process, the company included the production from its Coal-Mac mine in the Other Thermal segment rather than the Appalachia segment. As a result, it’s difficult to compare YoY segment-wise shipments.

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For 4Q16, shipments of ARCH’s Metallurgical Coal (KOL) segment came in at 2.4 million tons compared to 2.2 million tons in 3Q16. These shipments mostly include coking coal, with the remaining volume consisting of a mix of PCI (pulverized coal injection), thermal, and lower-quality thermal by-product coal.

ARCH’s PRB coal shipments came in at 21.8 million tons compared to 22.7 million tons during 3Q16. The company’s shipments from the Other Thermal Coal segment remained flat at 2.5 million tons sequentially.

Arch Coal’s overall shipments

For 4Q16, ARCH’s overall coal shipments came in at 26.7 million tons compared to ~27.8 million tons in 4Q15 and 27.4 million tons in 4Q16. The fall in shipments was primarily due to lower shipments from the company’s PRB coal mining region, which was offset to some extent by higher metallurgical coal shipments.

According to the company’s filings, production restrictions in China, as well as a strong rebound in seaborne metallurgical coal prices on the backdrop of an expected increase in steel production, led to higher metallurgical coal shipments in 4Q16.

Higher seaborne metallurgical coal prices could also benefit ARCH’s peers, including Peabody Energy (BTUUQ) and Alliance Resource Partners (ARLP). Cloud Peak Energy (CLD) is a pure-play PRB thermal coal producer.

Next, we’ll learn about Arch Coal’s coal pricing in 4Q16.

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