SunCoke Energy Inc. (SXC) reported strong preliminary domestic coke production estimate and domestic capacity utilization for the third quarter of 2014.
The company expects domestic coke production to be 1,090 thousand tons, up 2.9% sequentially and 0.8% year over year. The anticipated year-over-year improvement will primarily result from a rise in production at the Granite City facility, caused by enhanced coal-to-coke yields. The Indiana Harbor facility, on the other hand, is expected to witness sequential and year-over-year improvement in targeted production volume.
The production upswing will boost SunCoke Energy’s domestic capacity utilization, which is estimated to be 102% for the third quarter, up 200 and 100 basis points sequentially and year over year, respectively.
There is some good news for the coal industry in the coming years. As per a report published by the World Steel Association, utilization of steel is expected to increase 3.1% in 2014 and its demand will rise 3.3% in 2015, mainly due to the gradual recovery in the U.S. economy, as well as higher demand in the Eurozone, the Middle East and North Africa (MENA) region and India. Increase in steel production will subsequently boost coal consumption as metallurgical coal is the primary raw material for the production of steel due to its heat producing feature.
Lisle, IL-based SunCoke Energy is well positioned to compete with its peers, Natural Resource Partners LP (NRP) and Rhino Resource Partners LP (RNO), primarily owing to its vast experience in offering high-quality coke to the steel industry.
The company’s domestic coke operation consists of cokemaking and heat recovery facilities at its Granite City, Haverhill, Indiana Harbor, Jewell and Middletown plants. In 2014, SunCoke Energy plans to invest $138 million as capital expenditure of which, a significant portion will be utilized for improving efficiency.
As of Jun 30, 2014, SunCoke Energy had total annual cokemaking capacity of 6,380 thousand tons, including 650 thousand tons and 1,220 thousand tons at the Granite City and Indiana Harbor facilities, respectively. The company expects its domestic coke production to be around 4,200 thousand tons in 2014.
A stable cokemaking capacity along with strategic capital spending program will allow SunCoke Energy to boost future coke production volume.
SunCoke Energy currently has a Zacks Rank #3 (Hold). However, a better-ranked stock in the same industry worth considering is Foresight Energy LP (FELP), which carries a Zacks Rank #2 (Buy).
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