Peabody announced its second quarter 2018 operating results, including revenues of $1.31 billion, income from continuing operations, net of income taxes of $120.0 million, net income attributable to common stockholders of $113.7 million, diluted earnings per share from continuing operations of $0.93 and Adjusted EBITDA1 of $369.6 million.
"Peabody's diversified portfolio continues to generate substantial returns, led by 39 percent margins from the company's Australian platform, as we capitalize on continued strength in seaborne metallurgical and thermal coal fundamentals," said Peabody President and Chief Executive Officer Glenn Kellow.
According to company’s press release, vigorous seaborne thermal demand led to further strengthening in seaborne thermal coal pricing during the quarter, with Newcastle spot pricing reaching highs of approximately $116 per tonne in the second quarter.
Chinese thermal coal imports rose approximately 20 percent, or 19 million tonnes, through June compared to the prior year on sturdy industrial activity and an approximately 8 percent increase in thermal power generation driven by favorable weather conditions. In addition, domestic coal production has been unable to keep pace with the increased power generation and industrial demands, along with customer restocking.
India's domestic coal production has also been unable to keep pace with growing electricity demand, resulting in an approximately 13 percent increase, or 9 million tonnes, in thermal coal imports through June compared to the prior year. Coal inventories at India's power plants remain below targeted levels, further supporting the need for additional thermal coal imports.
In addition, ASEAN imports increased compared to the prior year on continued urbanization and general economic growth. Peabody expects this trend to continue as 56 gigawatts of new coal plants in 24 countries worldwide are expected to come online in 2018. The majority of new plants are located in the Asia-Pacific region, with additional plants announced in a number of other countries anticipated to come online in future years.
Through May, Australian exports have remained essentially flat, with Indonesia and U.S. thermal coal exports through May increasing approximately 18 million tonnes and 8 million tonnes, respectively, supporting ongoing strength in seaborne pricing. Annual contracts under Japanese Reference Pricing terms were recently reported as settled in July at $110 per tonne.
Turning to metallurgical coal, the company said, reference prices eased from the first quarter of 2018 but remain above historical averages, reaching a high of $201 per tonne last quarter.
Global steel production remains strong, rising 4 percent year-to-date through May, with May output increasing over 6 percent to an all-time high.
Despite continued strength in Chinese steel production, metallurgical coal imports declined approximately 7 million tonnes year-to-date through June compared to the prior year primarily due to increased reliance on domestic supplies.
As expected, India continues to lead the growth in metallurgical coal demand, with imports increasing approximately 16 percent through June compared to the prior year driven by an approximately 5 percent increase in steel production.
According to press release, Australian exports rebounded from the prior year effects of Cyclone Debbie, increasing approximately 7 million tonnes through May compared to the prior year. While the Aurizon rail and labor issues in Queensland continue to garner significant media attention, Peabody has yet to be impacted by delays in rail services and continues to closely monitor the situation.
Compared to the prior year, second quarter 2018 seaborne hard coking coal spot pricing remained steady at an average price of approximately $190 per tonne. The index-based settlement price for premium hard coking coal was approximately $197 per tonne compared to approximately $194 per tonne in the prior year. The second quarter benchmark low-vol PCI price was negotiated at $155 per tonne, with the third quarter benchmark settled at $150 per tonne.
In the U.S., industry conditions remain challenged as utility coal consumption declined 5 percent from the prior year, despite a 4.5 percent increase in total load. Natural gas and wind generation continued to rise, along with an increase in nuclear generation driven by the timing of refueling across nuclear plants. In addition, retirements continue to weigh on coal demand and account for an estimated 3 percent of the decline in year-to-date coal demand. Powder River Basin demand decreased 5 percent due to ongoing pressure from retirements and regional natural gas prices that continue to trade at a discount to quoted Henry Hub prices.
While domestic demand has weakened, U.S. exports have continued to benefit from strong seaborne pricing, with thermal exports through May up 48 percent compared to the prior year. As a result of hearty U.S. exports and declining U.S. coal production, stockpiles have decreased from the prior year by an estimated 34 million tons as of the end of June to approximately 46 days of maximum burn.
