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Metallurgical coal price settlements declined throughout the year, and first quarter 2016 <br />settlements for premium hard coking coal fell 9 percent to $81 per tonne. The benchmark for <br />low -vol PCI eased from $71 to $69 per tonne, showing relative strength to the premium coking <br />coal product. Seaborne metallurgical coal demand declined approximately 15 million tonnes in <br />2015 resulting in accelerated production cutbacks primarily in the U.S. and Canada. Peabody <br />projects modest seaborne metallurgical coal supply reductions in 2016 as further declines in the <br />U.S. overcome small production increases from other exporting nations. <br />In seaborne thermal coal markets, demand declined 8 percent on a nearly 75 million <br />tonne reduction in Chinese imports, lower European demand and a decline in international <br />liquefied natural gas prices. The overall decline in seaborne thermal demand primarily impacted <br />U.S. and Indonesian exports, which were down 41 percent and 23 percent, respectively. <br />Within U.S. coal markets, demand from electric utilities declined approximately 110 <br />million tons in 2015 on mild weather and lower natural gas prices. Natural gas prices fell nearly <br />40 percent in 2015 to an average of $2.63 per mm/Btu, which drove coal's share of electricity <br />generation in the power sector down to 34 percent compared with 40 percent in the prior year. <br />U.S. coal production declined approximately 105 million tons in 2015 as production cutbacks <br />accelerated during the year. As a result, fourth quarter production was down approximately 50 <br />million tons compared with the same period in 2014. Despite supply rationalizations, reduced <br />coal demand led to utility inventories rising nearly 30 percent above prior -year levels. <br />Peabody expects 2016 U.S. utility coal consumption to decline approximately 40 to 60 <br />million tons based on projected plant retirements and lower natural gas prices. The decline in <br />demand, combined with an expected significant reduction in utility stockpiles and lower exports, <br />is projected to result in a 150 to 170 million ton decline in 2016 U.S. coal shipments. As a <br />result, Peabody is lowering its 2016 U.S. sales targets by 13 percent at the midpoint, and is now <br />fully priced for the year. <br />2016 CORE PRIORITIES <br />Peabody achieved a number of accomplishments in 2015, and the company is <br />expanding on previous successes with a major focus on operational, portfolio and financial <br />initiatives across the business. <br />Core priorities for 2016 include: <br />• Driving continuous improvement in safety, productivity and costs. In 2015, <br />Peabody transformed its operations to respond to difficult market conditions. The <br />company set a new record for safety, with a 13 percent reduction in the global safety <br />incidence rate to 1.25 per 200,000 hours worked for employees and contractors. In the <br />U.S. and Australia, Peabody improved costs by 5 percent and 24 percent, respectively, <br />and gross margins across four of the company's five operating segments averaged 26 <br />4 <br />