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SunCoke Unveils Q2 Domestic Coke Output

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SunCoke Energy Inc. (SXC) announced preliminary estimates for domestic coke production and domestic capacity utilization for the second quarter of 2014.

SunCoke Energy expects domestic coke production to be 1,059 thousand tons, down around 2% from the prior-year figure. However, quarterly production guidance is higher than the first quarter 2014 figure by 115 thousand tons.

The expected year-over-year decline in domestic coke production is primarily due to production decline of 19 thousand tons at the company’s Haverhill coke-making facility as a result of lower coal-to-coke yields. In addition, an estimated production decline of 12 thousand tons at the Indiana Harbor coke-making facility is expected to slash the domestic coke output. This will hit SunCoke Energy’s domestic capacity utilization, which is estimated at 100% for the second quarter, down from 102% in the year-ago period.

The Indiana Harbor facility witnessed lower production in the last few quarters. In first-quarter 2014 and fourth-quarter 2013, SunCoke Energy generated 199 thousand tons and 255 thousand tons of coke from the facility, down 22% and 6.6% sequentially, respectively. The company has completed a refurbishment project, worth $104 million, at the facility.

In first-quarter 2014, SunCoke Energy identified that the oven floor and sole flue on around 80 ovens at the Indiana Harbor facility require replacement. In the future, these initiatives will enable the company to improve its production level, besides reducing maintenance expenses.

In May 2014, SunCoke Energy had completed a dropdown transaction with SunCoke Energy Partners, L.P. (SXCP) with 33% interest in each of the Haverhill and Middletown coke-making facilities, for a total consideration of $365 million.

Metallurgical coal is the primary raw material for the production of steel due to its heat producing feature. As per the World Steel Association report, published in Apr 2014, global steel use will increase in 2014, primarily driven by a gradual recovery in the U.S. market. SunCoke Energy expects domestic coke production to be approximately 4.2 million tons.
As SunCoke Energy operates in a very competitive environment, we believe that the projected improvement in coal demand due to growth in the steel industry will have little impact on the company’s future sales volume.

SunCoke Energy currently has a Zacks Rank #5 (Strong Sell). However, some better-ranked stocks in the same industry include Alliance Resource Partners LP (ARLP) and Natural Resource Partners LP (NRP). While Alliance Resource holds a Zacks Rank #1 (Strong Buy), Natural Resource carries a Zacks Rank #2 (Buy).

Read the Full Research Report on NRP
Read the Full Research Report on SXC
Read the Full Research Report on SXCP
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