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SunCoke Energy Inc. Message Board

  • cohsgrad cohsgrad Dec 20, 2012 4:03 PM Flag

    Coking Coal Prices

    I've not followed this company so I don't know much beyond the following:

    1) Fairly new co. Not sure why Sunoco spun it off, maybe it was positive, maybe it was negative.
    2) Mgt. seems pretty aggressive and smart. Seems positive.

    Two things that I am curious about are:
    1) Coking coal duties in China were eliminated so I would expect supply to come out of China. I tend to say "so what" as SunCoke has long-term supply agreements. It isn't good for them but it isn't a disaster right???

    2) AKSteel. The new plant supplies AKSteel and AKSteel is under stress right? Is it conceivable they go bk and toss the agreement with SXC out the window? Longer term that sure seems like a high probability event but for all I know that is AKSteel's most efficient plant and would survive in BK or maybe there are other factors I'm not thinking about (I'm sure there are).

    Anyway, anyone able to address any of the above items?

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    • Couple of things on the competitive front. Comments concern strictly the MLP. AK Steel does have some new liquidity so they won't go belly up in the next two years. They do have the right to terminate the deal with SunCoke with two years notice so it will be interesting to see what happens if the price of Coke plunges. SXC can almost certainly provide it most efficiently so I don't think they are going anywhere but it is a club AK Steel could hold over them should Chinese exports increase.

      Not sure of situation of Ashland plant (owned by AK Steel) but if that closes, the MLP and Suncoke would be hurting.

      This MLP should be sold cheap. Much more business risk (with no upside due to nature of contracts) compared to what is out there. I don't think they are doing this for the tax benefits; they are just doing it because MLP's are fashionable and it is access to cheap capital. I would buy if the price is right with the plan of not holding it for no more than a couple of years depending on what is happening with AK steel and coking coal markets. Their other big customer (MT) isn't anything to worry about based on what I saw.

      Still don't think they should do the MLP though. If they want to grow, just borrow a bunch of money on a long-term basis.

    • Listened to the investors day call. Very impressive presentations.

      They should seriously consider going into the business of putting on investment/business seminars and stop trying to sell the MLP. I'm joking, maybe the MLP makes sense but I'm having a hard time buying into it. Seems like they will wind up creating pockets of losses without tax benefits and in the end the administrative costs will overwhelm any benefits that actually come to fruition.

      • 1 Reply to cohsgrad
      • Not to mention the taxes they will likely pay at the corporate level when they do the IPO. I'm just not understanding the point at all. Maybe they plan to sell the coal co and generate a big offsetting capital loss?

        Maybe they are going to sell the shares cheap and there won't be a big gain on the IPO? In effect a tax free distribution to whoever gets allocated shares? If I was a SunCoke shareholder I would watch this thing closely. Not followed the formation of any MLPs so the truth is I don't know.

        Oh well, I'm not going to figure it out. Given the delays, they are obviously having a hard time working through the issues too.

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