Coal Giant's Financials Reveal Export Weakness

Sep 25, 2013

 

This year, falling coal prices have raised questions about whether the controversial coal export terminals proposed in the Pacific Northwest would pencil out. Now, an analysis of one major coal company's finances shows it could be more profitable to bet against coal than to actually export it.

Cloud Peak Energy is a major player in the Powder River Basin in Wyoming and Montana, the source of the coal that could be exported from the terminals proposed near Bellingham and Longview, Washington and Boardman, Oregon. Clark Williams-Derry is with the Sightline Institute, a sustainability think tank in Seattle. His analysis of Cloud Peak's second quarter financial report shows that nearly all of the 2.8 million dollars its export unit earned that quarter came from its hedging program.

"Hedging is when you use complex financial instruments to try to guard yourself against the chances of coal prices falling, and in fact during the quarter, coal prices did fall considerably," he said. 

It's not unusual for commodities-based industries to use hedging as a kind of insurance against losses. But if you subtract the money Cloud Peak made from betting coal prices would fall, they earned only $200,000 exporting coal between April and the end of June. Williams-Derry says with prices expected to remain well below the highs that triggered the export terminal proposals in the first place, that window of opportunity may be closing.

"We see coal prices falling so low and so fast that it's very hard to see the coal companies making money from coal  exports at this point," he said.

Cloud Peak Energy declined to comment, other than to note that during an earnings conference call on July 30, CEO and president Colin Marshall told investors the company's exports remain profitable. Marshall also said shipments to new customers in Japan, and recent expansion of shipping capacity in Vancouver, BC, is evidence of continuing strong export potential.

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Beyond Coal Washington