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SXC Trims 3Q Domestic Coke Output

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SunCoke Energy Inc. (SXC - Free Report) announced its outlook on domestic coke production and domestic capacity utilization for third quarter of 2013.

Per the announcement, the domestic coke production in the quarter is expected to be flat with the prior-quarter level and down marginally by 1.5% year over year to 1,081 thousand tons. The year-over-year decline in production guidance is due to lower production at SunCoke Energy’s Indiana Harbor cokemaking facility for the restoration activities.

SunCoke Energy’s domestic capacity utilization, in the third quarter of 2013, is expected to be flat sequentially and two percentage points lower than the year-ago figure of 103% to 101%. This is likely to happen for the aforesaid reason.

We note that the Indiana Harbor facility, which is currently undergoing major upgrades, also witnessed lower production in the last two quarters.

Despite the refurbishment at the Indiana Harbor cokemaking facility, SunCoke Energy recently inked a deal with ArcelorMittal (MT - Free Report) to supply 1.22 million tons of metallurgical (met) coke annually from the facility. SunCoke Energy and ArcelorMittal have a strong business alliance. The renewed contract will enable the company to secure a stable revenue stream, going forward.

We know that met coke or hard coal is the primary raw material, utilized for the production of steel due to its heat producing feature. Global steel production is expected to increase in 2013 and 2014, primarily driven by higher consumption from China and India. In addition, we believe that the upcoming football world cup in 2014 and 2016 Olympic Games will boost demand for steel.

On the electricity generation front, the Energy Information Administration (EIA) announced that total coal consumption will increase in the near term primarily due to strong demand for electricity generation and volatility in natural gas prices.

To manage higher coal demand in the future, SunCoke Energy acquired Lakeshore Coal Handling Corporation, a coal handling and blending company, in Aug 2013. Further, the company’s unit SunCoke Energy Partners, L.P. (SXCP - Free Report) plans to acquire 100% ownership interest in Kanawha River Terminals LLC.

In spite of providing lower guidance for domestic coke production, SunCoke Energy’s share price touched a new 52-week high of $17.63 on Oct 4, 2013, primarily backed by strategic acquisitions and stable future contracts pipeline.

SunCoke Energy currently has a Zacks Rank #2 (Buy). James River Coal Co. is another stock in the industry that is worth considering with a Zacks Rank #2 (Buy).

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