By Olivia Kalb

July 16, 2019 - Arch Coal will maintain its 2019 met coal guidance in its second-quarter earnings call, but the thermal guidance is expected to drop due to subdued domestic consumption year to date, B. Riley analysts said in a note Monday.

B. Riley analysts Lucas Pipes and Matthew Key said they were modeling thermal volumes at the lower end of the range around 80 million-85 million st for this year, and about 16 million st for Q2, amid lower demand and logistical issues in the Midwest.

On the met side, the analysts anticipate the 2019 guidance to remain within 6.6 million-7 million st.

For Q2, they were modeling 1.55 million st of met coal sold at an average realized price of $127.13/st and Central Appalachian cash costs of $66.72/st. The price has fallen 15% to $184/mt since a high of $216/mt in March for spot seaborne met, "with most of the weakness concentrated in the last few weeks," the report said.

"Prominent US and European steel producers have announced production curtailments in recent months, and sentiment surrounding the sector has turned increasingly cautious," Pipes and Key said.

Rising iron ore prices have negatively affected steel producers, the report said.

Their EBITDA estimate for Arch fell from $108 million to $95 million for the second quarter, below the $98 million consensus, given lower volumes and higher costs in the Powder River Basin and the met coal market.

Arch and Peabody will combine their PRB and Western assets under a joint venture. Combined with Cloud Peak's May Chapter 11 bankruptcy and Blackjewel's July Chapter 11 bankruptcy and ceased production, this can further reduce supply, the analysts said.

"If [Blackjewel's mines] are shuttered for an extended period of time, the Peabody-Arch JV would result in an even higher concentration of total PRB production than when the deal was announced," the report said. "We do believe the loss of supply could tighten the market. In our opinion, these events should not have a negative effect on the likelihood of the JV receiving regulatory approval," the report said.