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SunCoke Energy Inc. (SXC - Snapshot Report) disclosed its preliminary second quarter 2013 domestic coke production figure, which slipped moderately by 1.3% to 1,081 thousand tons from 1,095 thousand tons in the year-ago quarter.

The decline in output is attributed to lower production activities in the company’s Indiana Harbor coke making plant. Domestic capacity utilization declined to 102% in the second quarter from 104% in the year-earlier period. We note that the Indiana Harbor facility, which is currently undergoing major upgrades, also saw lower production in the first quarter.

However, strong second quarter production from the Middletown and Haverhill plants somewhat countered the decelerating output. Combined coke production at the Haverhill and Middletown facilities registered a 3% increase to 455 thousand tons compared with 443 thousand tons in the second quarter 2012.

The facilities also saw a jump in capacity utilization rates to 110% in the second quarter from 108% in the year-ago period. SunCoke Energy Partners, L.P., which owns a 65% interest in the Haverhill and Middletown complexes contributed 296 thousand tons to overall production, up 3% from the corresponding year-ago quarter.

SunCoke Energy’s production was hit substantially by weak metallurgical coal demand in the second half of 2012. However, the World Steel Association has provided a favorable growth forecast of 2.9% and 3.2% in global steel usage in 2013 and 2014, respectively. The rising housing activities in India and infrastructure needs for the upcoming football world cup in 2014 as well as the 2016 Olympic Games in Brazil will drive steel demand.

We expect SunCoke Energy to derive significant benefits from its coke operations in these countries in the future. Furthermore, upturn in steel consumption in the North American markets will be backed by encouraging automotive industry fundamentals.

On the whole, we expect SunCoke Energy to perform steadily in the upcoming quarters. Nevertheless, the still fragile economic conditions in the U.S. are a cause of concern.

SunCoke Energy presently carries a Zacks Rank #3 (Hold). Another coal industry player expected to profit from a reviving steel market is Walter Energy Inc. (WLT - Analyst Report). Particularly looking good at the moment are Zacks Ranked #1 (Strong Buy) Alliance Resource Partners L.P. (ARLP - Snapshot Report) and Zacks Ranked #2 (Buy) Hallador Energy Company (HNRG - Snapshot Report).

Based in Lisle, IL, SunCoke Energy engages in mining and producing coke in the Americas. It offers metallurgical and thermal coal for steel making processes.

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