While coal prices remain soft during the summer lull in demand and higher inventory levels, Foundation Coal Holdings should overcome the downturn “relatively unscathed,” an analyst of the company said.
Mild winter weather, a cool early summer and increased shipments led to lower prices and increased inventory totals. Coal production is down across the United States, said Michael Tian, an analyst for Morningstar, a Chicago-based investment research firm, who follows Foundation Coal.
“Production is down in the United States about 2 percent this year,” Tian said. “Production has usually increased about 2 [percent] to 3 percent every year for the last few years.”
U.S. coal production for the week ending Sept. 1 dropped about 123,000 tons to 22.52 million tons, according to data from the federal Energy Information Administration.
The Genscape Coal Burn Demand Index, another coal indicator, fell 3.8 percent in the week ending Thursday, the third consecutive week that demand fell, according to reports.
Prices should improve toward the end of the year with the combination of increased electricity generation and declining production, Tian said.
“Foundation should navigate any short-term price downturn relatively unscathed,” Tian wrote in a recent report on Foundation. “It has already committed the vast majority of planned 2008 production volume.”
Foundation Coal in August reported a net income loss of $3.8 million for the second quarter of 2007, compared with net income of $22 million for the same period in 2006. The firm still totaled about $360 million in revenues during the quarter, up slightly from second-quarter 2007.
“Foundation was negatively impacted by the effects related to the idling of our Wabash mine and the value of lost production resulting from the nine-day strike that occurred at our union mines in April,” James F. Roberts, Foundation chairman and chief executive officer, said in a statement.
Foundation Coal, with headquarters in Linthicum Heights, owns 13 mines in the Powder River Basin, Northern Appalachia and Central Appalachia. The firm produced about 66 million tons of coal in 2005.
Foundation Coal is part of The Examiner Top 10, a portfolio of some of the largest publicly traded companies in the Baltimore region.
