Peabody predicts long-term growth in coal demand

Peabody Energy believes the world is in the early stages of a long-term supercycle for coal driven by increasing energy use in China, India and other emerging markets, global growth in steel consumption and a lack of alternative supplies with the cost and scale required. By 2015, about 390 GW of new coal-fired power generation is expected to come online and steel production is expected to rise by more than 30%, with Asia being the main driver of growth.

International markets

Global markets strengthened in late 2010 on the back of strong Asian demand and a particularly early and strong onset of winter in the Atlantic markets, while supply challenges also hit exports from the major Southern Hemisphere producers. Seaborne coal demand increased by an estimated 13%, led by a 32% increase in met coal demand. Pacific thermal coal demand also rose by 15%, although the Atlantic market fell by 10%.

Chinese imports totaled 147 million t in 2011, a 41% increase on 2009’s previous record levels. Meanwhile, India’s imports increased by 25% but stockpiles are less than half the target levels. Both economies are again expecting robust growth in 2011, with the Chinese economy expected to grow by 8 – 10% and India’s expected by 8%.

On the supply side, Australia exported a record 300 million t, remaining the largest coal exporting nation, even with the impact of the December flooding. Peabody believes that seaborne coal demand could exceed 1 billion t for the first time this year driven by new demand in Asia, recovering economies in the developed world and continued increases in steel production.

US coal markets

Demand for US rose by 75 million t last year following a 5.5% increase in coal-fired generation and an 18 million t rise in exports. Peabody expects US coal demand will increase modestly in 2011 with more signification growth in 2011 and beyond.

Additional short-term export opportunities are also developing for Illinois and Colorado coal to Europe and Powder River Basin coal to Asia and Europe.

Forecast

Following sales of 245.9 million t in 2010, Peabody is targeting sales of 245 million – 265 million t this year. Of this 195 – 205 million t will be from the US, 28 – 30 million t from Australia, and the remainder from trading and brokerage activities. 2010 EBITDA totaled US$ 1.82 billion, up 41% on 2009, with the company setting a record for revenues of US$ 6.86 billion.

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