Shipping Sector Sinking : Capesize Rates Collapse with Coal / China Imports

“It looks like the market is going to continue being a big disappointment”

A deeper slump in earnings for ships that carry most of the world’s coal and ore cargoes would force owners to take vessels out of service, according to shipbroker RS Platou Markets AS.

Average daily earnings for Capesize ships fell to $3,735 today, the lowest in more than two years, according to data from the Baltic Exchange in London. Rates will probably remain low next year, according to Herman Hildan, shipping analyst at Platou.

“At the moment, they’re barely covering their operating costs,” Hildan said by phone today from Oslo. “It doesn’t make sense for owners to participate in fixing vessels” if rates fall further.

Signs of slowing growth in China, the world’s largest importer of thermal coal and iron ore, have caused a collapse in Capesize rates of about 90 percent this year. China’s economy will expand by 7 percent next year, the slowest growth in a quarter century, according to economist forecasts in a Bloomberg survey. Customs data showed a slump in ore imports in November.

Hildan’s own estimates show Capesize vessels are currently earning $6,900 a day on average. Shippers would begin taking their vessels out of service when the daily rate falls below $5,000, he said.

The rate for the vessels, which can carry as much as 160,000 metric tons of iron ore, has averaged $13,923 in 2014, according to Baltic Exchange data. Analysts were expecting daily earnings of $18,500, according the median of estimates gathered by Bloomberg in January.

“It looks like the market is going to continue being a big disappointment” in 2015, Hildan said.

It is human nature to look for bargains - and destroy your portfolio as you gather losers into what used to be a ” nest” egg.

Look at Seeking Alpha and count the ” analysts” saying Dryships ( DRYS) is going to turn – how none forecast the sub dollar level it now enjoys.

What To Do ?

Here is our recent letter(the section on shipping)

Managed Accounts Year End Review and Forecast

Shipping Sector / Bulk ShippersYou can review our stock market letter at http://www.amp2012.com to follow our profits in the shipping sector before our retreat as overcapacity has yet to effect continued overbuiding. In 2008-9 rates-  illustrated by the Baltic Dry Index – were at their peak. The BDI hit over 10,000. Today it is roughly 10 % of that benchmark and the sector slide continues. We have an impressive watchlist of former ” darlings” – but we are content to watch and wait.

Have you avoided these sectors – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.
No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

Alternate Guaranteed Income Payments

Private client funds Minimum $10,000 Maximum Loan $500,000

Our client is seeking funds to expand their tanker fleet .

Interest 12 % compounded – paid 1% per month

Floating charge of the full $500,000 against the fleet – valued at  more than $ 1 M

Contact information:

To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Call Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffshoremoney.com

 

Lor Loewen's photo.

ARCH Coal – Jim CRAMER says ” boo”

Yes Halloween is past but it’s never to late to scare you off coal .

TheStreet Quant Ratings rates Arch Coal  ( ACI) as a sell. The company’s weaknesses can be seen in multiple areas, such as its disappointing return on equity, poor profit margins, weak operating cash flow, generally disappointing historical performance in the stock itself and generally high debt management risk.

Highlights from the ratings report include:

Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ARCH COAL INC’s return on equity significantly trails that of both the industry average and the S&P 500.
The gross profit margin for ARCH COAL INC is currently extremely low, coming in at 12.81%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -13.09% is significantly below that of the industry average.
Net operating cash flow has decreased to $80.34 million or 40.29% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm’s growth is significantly lower.
ACI’s stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 44.75%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock’s sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
The debt-to-equity ratio is very high at 2.67 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company’s weak debt-to-equity ratio, ACI has managed to keep a strong quick ratio of 2.36, which demonstrates the ability to cover short-term cash needs.

Arch Coal – Still Down and Dirty ; Peabody Sees Rebound

Arch Coal Inc. (ACI) reported a narrower third-quarter loss and better-than-expected sales figures as it continues to cut costs in the face of slumping prices for the power plant and steelmaking fuel.

The net loss narrowed to $97.2 million, or 46 cents a share, from $128.4 million, or 61 cents, a year earlier, the St. Louis-based company said in statement today. Quarterly sales beat estimates as Arch increased output from western mines because of improved rail service.

Arch hasn’t turned a quarterly adjusted profit since 2011 amid coal’s worst downturn in decades. Faced with a six-year low for the price of metallurgical coal, Arch idled its Cumberland River complex in Central Appalachia in July. There’s a global surplus of the steelmaking ingredient after a slowdown in Chinese demand.

“We are further reducing our expectations for corporate administrative expense and capital spending in 2014, and expect to end the year with approximately $1 billion in cash and short-term investments,” John T. Drexler, Arch’s chief financial officer, said in the statement. “This strong liquidity position, coupled with no debt maturities until mid-2018, provides Arch with the financial flexibility needed to navigate current coal market conditions.”

‘No Surprises’

Other coal producers, including James River Coal Co. and Patriot Coal Corp., have filed for bankruptcy in the past two years as North American natural gas output soared, causing prices to drop to 12-year lows. Coupled with more stringent pollution measures, utilities are burning less coal to generate electricity.

The company reported $742.2 million in revenue, more than the $722.9 million average estimate and less than the $791.3 million it made during the same period last year.

“Overall, we see no surprises in the print, the company continues to hoard liquidity and aggressively cut costs,” Daniel Scott, a New York-based analyst for Cowen & Co., wrote in a note to clients today.

Arch climbed 9.5 percent to $1.96 at 10:54 a.m. in New York. The shares have declined 56 percent this year.

Excluding one-time items, the loss was 45 cents a share, exceeding the 41-cent average of 18 analysts’ estimates compiled by Bloomberg.

Other U.S. coal producers rose today. Walter Energy Inc. advanced as much as 11 percent before ending 1.3 percent higher, while Peabody Energy Corp. closed 1.8 percent higher. Alpha Natural Resources Inc. increased as much as 9.4 percent before closing 3.5 percent lower.

Investors see that the worst may be over for the coal market after a series of output cuts around the world

- said the chairman and chief executive officer of Peabody Energy Corp. (BTU), the largest U.S. producer.

“We’ve had essentially flat pricing now for about nine months,” Greg Boyce said in an Oct. 24 phone interview. “All of the investors are encouraged that that represents kind of a bottom to the commodities cycle, but they’re waiting to see what happens in terms of the timing of that uptick.”

Peabody and most of its publicly traded domestic competitors have posted losses amid the worst slump in the coal industry in decades. The price of metallurgical coal used in steelmaking has fallen to a six-year low because of slowing Chinese growth. Thermal coal used to generate electricity has also dropped on tighter emissions regulations and competition from cheap natural gas.

Shares of Peabody have fallen more than 9 percent since the start of trading on Oct. 20, when it reported a third-quarter loss of 56 cents a share. Boyce said Peabody’s stock declined because investors haven’t yet seen evidence that the global oversupply of coal is abating.

Peabody scaled back output of steelmaking coal at its Burton Mine in Australia this year. Glencore Plc and Walter Energy Inc. are among other producers that have made reductions. There have been 30 million tons of metallurgical-coal cutbacks announced globally this year, Boyce said in an Oct. 20 statement.

Rebound ‘Inevitable’

Investors will spend the next couple of quarters looking for signs of a recovery in coal prices, Boyce said. Given the industry’s reduction in new capital investments, a rebound is “inevitable,” he said.

“There’s going to be a long lag where you’ve got less supply than demand,” he said. “That’s going to have a strong, strong pull for the sector.”

Catalysts that coal investors are looking for include rising Chinese demand and an improvement in U.S. railroad capacity to deliver from mining regions such as Wyoming’s Powder River Basin, he said. Peabody, which produces most of its thermal coal in the PRB, said last week rail bottlenecks there are limiting its sales.

Boyce said Peabody will be “very well positioned” when the coal cycle does eventually turn. He doesn’t expect the company to buy up competitors or low-priced mining assets until coal prices start to rebound, he said.

“Right now, there are no tier-one assets on the market, because the people that have them, they’re not interested in selling at the bottom of the cycle,” he said.

 

Arch Coal Expansion Halted At Supreme Court

Global Warming Texas
In a landmark decision on Friday that could have far-reaching implications for federal coal leasing, a U.S. District Court judge ruled against the expansion of Arch Coal’s West Elk mine in Colorado for failure of federal regulators to consider the social cost of carbon in their environmental review.
The decision issued by Judge Jackson of the U.S. District Court in Colorado found that the Bureau of Land Management and the Forest Service overlooked the costs of carbon emissions from the mining and combustion operations associated with the mine’s expansion even though the agencies acknowledged that expanding West Elk’s operations would likely result in greater greenhouse gas emissions.
Friday’s ruling is the result of a challenge brought by environmental groups contesting three agency decisions on the Colorado Roadless Rule and expansion of the West Elk mine in the Sunset Roadless Area. This region is a part of the treasured North Fork Valley backcountry in western Colorado which abuts the iconic West Elk Wilderness and is a destination for hikers and hunters and habitat for the threatened lynx.
The agencies’ decisions would have permitted Arch Coal to expand the West Elk Mine into 1,700 acres of the Sunset Roadless Area, the bulldozing of six miles of road, and the construction almost 50 well pads for the venting of methane from the mine expansion. Methane is a potent greenhouse gas and the second-most prevalent GHG emitted in the United States after carbon dioxide.
According to the decision, the BLM and Forest Service initially found that the social cost of carbon associated with the expansion could be as high as $984 million, but the agencies arbitrarily scrapped this analysis from the final environmental impact statement. However the associated benefits of the project were still included in the agencies’ analysis. The court called this error “more than a mere flyspeck.”
The ruling goes on to acknowledge that agencies are required to analyze the effects of their actions on climate change. The court noted that the BLM and Forest Service “acknowledged that there might be impacts from GHGs in the form of methane emitted from mining operations and from carbon dioxide resulting from combustion of coal produced,” and “this reasonably foreseeable effect must be analyzed.”
The decision was issued just in time before Arch Coal’s exploration activities were set to begin on July 1, and stops the expansion of the West Elk coal mine and any associated surface or below-ground activity, including bulldozing or construction, for now until the parties can agree on how to move forward.
Expanded coal leasing in the American West, particularly the coal-rich Powder River Basin in Wyoming and Montana, has been a hotly contested issue in recent years, with parties raising significant concerns over the climate effects of burning the coal mined in the region.
This court’s decision reminds agencies to consider climate impacts when making decisions affecting federal lands.

Goldman Sachs Conviction Buy List

If one brokerage firm on Wall Street can generate excitement with stocks to buy, it is Goldman Sachs. That is particularly so when the company makes changes to its Conviction Buy List. On Friday, two very unusual changes were made: a master limited partnership (MLP) and a coal company were added to the firm’s prized Conviction Buy List.

MarkWest Energy Partners L.P. (NYSE: MWE) was maintained as a Buy at Goldman Sachs, but the MLP was added to the Conviction Buy List and given a $78 price target. MarkWest closed at $70.64, has a 52-week range of $58.62 to $75.79 and has a consensus analyst target price of only $71.93. MarkWest is worth some $11.5 billion, and its distribution rate (“yield equivalent”) is listed as 5.1%.

SunCoke Energy Inc. (NYSE: SXC) is not a typical Conviction Buy List stock. The company operates as an independent producer of coke in the Americas, offering metallurgical and thermal coal for use as a raw material in the blast furnace steelmaking process. Goldman Sachs had a Buy rating but moved it up to the Conviction Buy List and assigned a $27 price target. After closing at $20.56, SunCoke has a 52-week range of $13.58 to $23.90, and the consensus price target is $25.33.

Metallurgical and thermal coal might not be as big a target in the current administration’s anti-coal push, but anything to do with coal has been a very hard sell to the investment community of late. As for risks in individual MLPs, MarkWest has diversified operations around the nation in several shale regions.

Joy Global : Less Joy

Joy Mining Machinery Founder Joseph Francis Joy

Joy Mining Machinery Founder Joseph Francis Joy (Photo credit: Wikipedia)

Joy Global (JOY : NYSE : US$49.16), Net Change: -2.15, % Change: -4.19%, Volume: 7,519,489
Joy Global, a maker of mining equipment, reported a 36% slide in quarterly orders and warned of
sharply lower revenue for a further year as coal producers cut back capital spending in the face of a supply glut and low prices.
Net income fell 5% to $183.2 million, or $1.71 per share. Revenue dropped 5% to $1.32 billion.

Excluding items, Joy Global earned $1.70 per share while analysts expected earnings of $1.37 per share, excluding items, on revenue of $1.18 billion. Joy Global maintained its 2013 forecast for earnings of $5.60-5.80 per share.

The company, which derives two-thirds of its revenue from sales to coal miners, said it would increase cost cutting to offset the slide in orders. Management maintained its forecast of revenue for the year to October 2013 of $4.9-5.0 billion, down from last year’s $5.66 billion, and it warned the following year would be worse.

“The current outlook (for 2014) is unlikely to support annual revenue above $4 billion,” Chief Executive Mike
Sutherlin said in a statement. This is sharply lower than the previous average expectation from analysts for revenue of $4.57
billion for the year ending October 2014.

Teck Resources

English: This is a logo for Teck Cominco.

English: This is a logo for Teck Cominco. (Photo credit: Wikipedia)

(TCK.B : TSX : $33.28), Net Change: -1.17, % Change: -3.40%, Volume: 3,996,733
Teck Resources continued to slide on Friday. On Thursday, the diversified metals producer announced Q4/12 results that saw the company report $0.61 per share, well ahead of  consensus estimates of $0.48.

The earnings beat versus estimates was due to lower coal cash costs of $103 per tonne, higher copper sales volumes of 105,000 tonnes and lower depreciation, partially offset by higher copper cash costs of US$1.79 per pound.

TCK.B also provided initial 2013 guidance which overall was soft. For 2013 copper production guidance ranged 330,000-370,000 tonnes, while coal production guidance ranged 24-25 million tonnes. Both of these were below Wowkodaw’s estimates of 374,000 tonnes and 25.5 million tonnes respectively. 2013 coal cash cost guidance of US$107- 117/tonne was in line with estimates of US$113/tonne. 2013 capital cost guidance was higher at $2.0 billion, due to spending on the QBII project being brought forward. For Q1/13, TCK.B has already reached agreements to sell 6.0 million tonnes of coal at an average price of US$159/tonne.

In project development, the company continues to make good progress on the mill modernization at its Highland Valley Copper mine, the acid plant project at Trail and the advancement of TCK.B’s new mine development projects. On TCK.B’s quarterly conference call, CEO Don Lindsay discussed acquisition opportunities (from Seeking Alpha transcript), “We talked about, in the past, that iron ore would be a  good fit for our portfolio and it really would for all sorts of good reasons. I said in the last quarterly call that we’ve moved on because we just found the values too high.  But values have come down and also, as probably those who follow the industry closely, there’s a few new assets that have become available.”

Canadian Pacific Railway

An old CP Rail car outside the Brockville, Ont...

An old CP Rail car outside the Brockville, Ontario tunnel (Photo credit: Wikipedia)

Canadian Pacific Railway* (CP : TSX : $91.35)
All I didn’t want for Christmas was a pre-tax non-cash charge of $180 million.

CP Rail announced that it would be taking a fourth-quarter, pre-tax non-cash charge of $180 million on its option to build a rail line into the Powder River Basin (PRB). When CP acquired the Dakota Minnesota & Eastern railroad in 2007, it also acquired the option to build a 260-mile extension of its network into coal mines in the PRB.

Components of the charge include the option, engineering design costs, land and capitalized interest. It is CP’s intention to defer indefinitely plans to extend its rail network into the PRB coal mines based on continued deterioration in the market for domestic thermal coal, including a sharp deterioration in 2012.

CP is hosting an investor event this week, in which it is expected that the company will provide details on its profit improvement program.
Management wants to improve CP’s operating ratio (OR) to 65% (EBIT margin of 35%) over the next 3-4 years from the current roughly 78% OR and the company record OR of 75.5% achieved in 2006 and 2007. Canaccord  estimates that CP will generate an appealing 18% annual share price appreciation over the next 3 years if it achieves a 65% OR in 2016. This gain declines to a less exciting 12% at a 70% OR

Consul Energy update – Very Little Light In The Coal Tunnel

CONSOL Energy Park

CONSOL Energy Park (Photo credit: Wikipedia)

CONSOL Energy (CNX : NYSE : US$34.36)

October 16

Canary in the coal sector ?

CONSOL Energy provided the market with an operational and financial update for Q3/12.

The company announced that it expects to report a net loss for the quarter, due to a combination of marketing and operational issues. “While  precise figures are not yet available, it is clear that the company’s previously announced planned and unplanned mine idlings took their toll on third quarter earnings,” commented CFO William J. Lyons. “Fortunately, CONSOL Energy has the balance sheet to maintain market discipline. Even at the end of the quarter, our liquidity remained strong.

At September 30, 2012, we had cash of $231 million, no short term debt, and $2.3 billion of capacity under our credit facilities.” During the last several months, CONSOL announced a planned two-week idling of Blacksville Mine and a one-week idling of Robinson Run Mine, due to weak thermal coal markets. The Fola Mine was also idled. Subsequently, the company suffered the failure of two new conveyor belts at the Bailey Preparation Plant, which impacted production at the Enlow Fork and Bailey mines.

In early September, the company announced the idling of its premier low-vol Buchanan Mine for an estimated 30-60 days. CONSOL’s Coal Division produced 11.6 million tonnes during the quarter, including 0.8 million tonnes of low-vol metallurgical and midvol coal from the company’s Buchanan and Amonate Mines. CONSOL’s total coal inventory decreased during the quarter by 0.7 million tonnes to 1.7 million tonnes as of September 30, 2012. Thermal coal inventory decreased by 0.8 million tonnes during the quarter, as sales outpaced the scaled-back production .

 
 

Alpha Natural Resources / Coal Sector : Structural Change Underway

English: Logo for Alpha Natural Resources

English: Logo for Alpha Natural Resources (Photo credit: Wikipedia)

Alpha Natural Resources (ANR : NYSE : US$7.87)

Sept. 19

 

Alpha Natural Resources said it is planning to shut some cole mines while slashing 9% of its work force in the face of weak demand for coal. The moves are part of the company’s shift away from power-plant coal, where low demand and prices have made the fuel less and less profitable than steelmaking coal. The plan will see about 1,200 jobs cut and a 15% reduction in output from 2011 levels.

The U.S. market, where a 15% decline in coal demand is expected, is undergoing a structural shift, rather than a temporary one, the company said in a statement. It plans to increase its efforts to sell met coal as well as both steelmaking and power-plant coal overseas, where demand is stronger. All in, eight mines will be idled, resulting in 400 positions being eliminated. It will also consolidate its four operating regions in to two, which should save about $150 million

 

 

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