The company is cutting its 2002 capital expenditure budget from its previous estimate of US$180-200 million to an expected US$150 million.
"While we are seeing the initial signs of an economic recovery, and forward pricing for 2003 has begun to increase, we believe that the best course for Arch is to act aggressively to bring production in line with demand," Steven Leer, Arch Coal president and chief executive, said.
With utility stockpiles at higher-than-normal levels, spot coal prices have fallen over the winter. Arch plans to meet its contractual obligations in 2002, but does not plan to sell any of its uncommitted coal at current prices.
"We are committed to being a market-driven producer," Leer said. "We believe it would be a mistake to sell coal into an oversupplied market, at prices that will not provide an adequate return."
Leer said the reductions would have an adverse impact on earnings, particularly in the first and second quarters, given the relatively fixed nature of Arch's cost structure in the near term. He added that the company believed this to be the right business decision, which would prove beneficial in the future.
The company could expect to lose US$3-8 million in the first quarter of 2002. Leer indicated that the second quarter is likely to be affected as well if the market does not improve.
"It is difficult to be more precise since many customers are seeking to delay contracted shipments due to full stockpiles," Leer said. "We expect this situation to persist through the spring months."
The industry's intermediate and long-term prospects are very sound, according to Leer: "It has become increasingly clear that coal must continue to play the dominant role in US power markets. Nuclear power plants are operating at close to full capacity and U.S. gas reserves are becoming increasingly expensive to develop.
"Ongoing efforts to bolster America's energy security should also favour coal, which is easily our most abundant energy resource. In short, the fundamentals for coal remain very strong. Arch Coal is in an excellent position to compete aggressively and successfully in this dynamic market environment."
