Peabody Energy Corp Revenues Fall On Weak Chinese Demand, Natural Gas Competition

U.S. coal giant Peabody Energy Corporation reported a 5.5 percent drop in first-quarter revenue due to falling prices and slowing Chinese demand. The St. Louis company also lowered its projections for U.S. coal demand and production in 2015, citing stiff competition from cheaper natural gas.

Peabody’s revenue fell to $1.54 billion in the first three months, from $1.63 billion in the first quarter of 2014, the company told investors Thursday. Cost reductions across U.S. operations largely offset $100 million in lower pricing last quarter.

“In the face of market headwinds, Peabody’s first-quarter performance demonstrates the underlying strength of our business as ongoing cost improvements largely overcame lower coal prices and the impact of heading,” Glenn Kellow, Peabody’s president and CEO-elect, said in a statement.

Shares of Peabody (NYSE:BTU) were down 5.75 percent to $4.59 in early-Thursday morning trading in New York.

Chinese coal imports have steadily dropped in recent months as the country’s manufacturing sector slows. HSBC’s preliminary index of manufacturing activity in China fellow to a one-year low of 49.2 in April. A number below 50 indicates the economy is contracting, HSBC reported Thursday. Rising domestic production in China is also curbing the country’s need for Peabody imports. Quality restrictions, tariffs and lower domestic taxes are prevailing over imported coal, Peabody told investors.

“The impact of slowing Chinese demand has weighed on the market,” Kellow said. But rising coal demand in India could help offset those losses, he added. India is expected to surpass China this year to become the largest importer of seaborne coal as the Indian government seeks to boost energy production and accelerate economic growth.

Indian imports of thermal coal, which is used to generate electricity, rose 16 million metric tons through March 31, while coal-fueled generated jumped 6 percent, Peabody said. Imports of metallurgical coal, used in steelmaking, rose 49 percent to 12 million metric tons through the first quarter of 2015.

“We expect rising Indian coal imports, ongoing global urbanization trends and economic growth to lead to rising steel and electricity consumption over the next several years,” Kellow said.

In the U.S., however, demand for coal is shrinking. Coal-fired generation fell 14 percent through March, while natural gas generation rose by 14 percent. Natural gas prices averaged $2.82 per million British Thermal Units (mmBtu) in the first quarter, compared to $4.26 per mmBtu last year.

Peabody now projects U.S. coal demand to fall by 80 to 100 million tons this year. As a result, the company has reduced its 2015 U.S. volume targets by 10 million tons.