By Sarfaraz A. Khan
Summary: Peabody Energy has recently increased the guidance of its Q3 EBITDA but latest data points towards deterioration in metallurgical and thermal coal prices. The latest data confirms my opinion that a meaningful recovery in coal prices is a distant dream. As anticipated in the original article, weak economic numbers from China continue to hit coal prices and Peabody Energy's shares.
Earlier this week, the struggling coal miner Peabody Energy raised the guidance for its third quarter adjusted EBITDA from $140 million - $190 million to $190 million - $210 million. The improvement was driven by the company's cost reduction measures and improved performance from the Western U.S. and Australian metallurgical, or steel making, coal mines. Additionally, the company has lowered its adjusted diluted EPS estimates from a loss of between $0.40 and $0.53 per share to a loss of between $0.63 and $0.69 per share, mainly due to a non-cash tax expense.
On the other hand, the quarterly benchmark for metallurgical coal has touched 6-year lows, as reported by Bloomberg. Japanese steel mills have agreed to purchase coal from Australian producers for $119 per metric ton in the fourth quarter, down from $120 per metric ton in the second quarter. Additionally, analysts at Cowen & Co, which previously predicted worsening prices in the fourth quarter as mentioned in the original article, have now said that metallurgical coal prices could continue sliding through 2015.