Matt Warder shares state of the coal markets + $AMR $HCC
Mar 26, 2024
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Matt Warder, expert in coal markets, discusses high-level thoughts on coal, regulation impact, 'greening' of metallurgical coal, $AMR, $HCC, and upcoming election's effect on coal investments. Topics include Biden admin on coal, global cost curve for metallurgical coal, and valuations of $HCC and $AMR.
Transition to greener practices impacts steel production costs and processes.
Comparison of AMR and HCC reveals potential buy opportunities in coal industry.
Deep dives
Overview of Coal Market Dynamics
The coal industry encompasses a diverse range of products serving utilities, industrial sectors, and steel production. Thermal coal powers plants, while metallurgical coal is essential for steel manufacturing. The global coal market faces challenges like competition from natural gas, impacting prices. Metallurgical coal prices have stabilized post-COVID, offering more stability compared to thermal coal affected by natural gas pricing fluctuations.
Financial Impact and Strategies of Coal Companies
Coal companies experienced a windfall in recent years, leading to debt reduction and increased free cash flow. The focus now is on returning cash to shareholders and maintaining financial stability. Metallurgical coal producers like Alpha Metallurgical Resources and Warrior Met Coal are seen as stable investments with consistent free cash flow yields. The industry anticipates fluctuating market conditions but aims for long-term stability.
Transition to Green Steelmaking and Industry Challenges
The steel industry is transitioning to greener practices, shifting towards electric arc furnaces powered by scrap steel or direct reduced iron. Europe faces challenges in developing its scrap market for electric arc furnaces, potentially impacting steel production costs. As governments incentivize greener processes, steelmakers must balance blast furnace and electric arc furnace operations to meet environmental targets and production demands. The transition to low-carbon steel production involves complex considerations like hydrogen infrastructure development and safety concerns in the industry.
Insight on AMR Coal Company Performance and Stock Valuation
AMR, a prominent coal company, has stood out in terms of strong performance indicators. The company has managed to pay off their debts, engage in buyback programs, and exhibit profitability for an extended period. Observations suggest that AMR is anticipated to respond effectively to price fluctuations in the coal market. The discussion revolves around a potential stock price dip leading to a strategic buying opportunity, focusing on a hypothetical target price of $250 per share based on historical trends and potential market corrections.
Comparison Between Warrior Met Coal and Alpha Stock Valuations
Comparing Warrior Met Coal and Alpha, both coal companies show a similar path towards generating substantial free cash flows of around $800 million annually once growth projects like Blue Creek mine come online. The narrative delves into the valuation differences between the two stocks, pointing out that Warrior Met Coal could potentially double in value and emerge as a buy opportunity due to its lower stock price relative to its overall performance metrics and estimated future cash flows. The conversation emphasizes the dynamics of balancing growth and buyback strategies to optimize shareholder returns against the backdrop of evolving coal market conditions.
Matt Warder, @mfwarder on Twitter/X, joins the podcast to discuss all things Coal, including: high level thoughts on coal, investing narrative from last few years, regulation, "greening" of metallurgical coal, $AMR, $HCC, upcoming election's impact on coal investment case and more!
