PEABODY ENERGY CORP 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk. Coal Pricing Risk The Company predominantly manages its commodity price risk for its non-trading, long-term coal contract portfolio through the use of long-term coal supply agreements (those with terms longer than one year) to the extent possible, rather than through the use of derivative instruments. As of June 30, 2023, the Company had approximately 109 million tons of U.S. thermal coal priced and committed for 2023. This includes approximately 91 million tons of PRB coal and 18 million tons of other U.S. thermal coal. The Company has the flexibility to increase volumes should demand warrant. Peabody is estimating full year 2023 thermal coal sales volumes from its Seaborne Thermal segment of 15 million to 16 million tons comprised of thermal export volume of 9.5 million to 10.5 million tons and domestic volume of 5.5 million tons. Peabody is estimating full year 2023 metallurgical coal sales from its Seaborne Metallurgical segment of 6.5 million to 7.5 million tons. Sales commitments in the metallurgical coal market are typically not long-term in nature, and the Company is therefore subject to fluctuations in market pricing. The Company’s sensitivity to market pricing in thermal coal markets is dependent on the duration of contracts. As of June 30, 2023, the Company had no coal derivative contracts related to its forecasted sales. Historically, such financial contracts have included futures, forwards and options. The Company classifies certain physical forward sales contracts as derivatives for which the normal purchase, normal sales exception does not apply. Foreign Currency Risk The Company has historically utilized currency forwards and options to hedge currency risk associated with anticipated Australian dollar expenditures. The accounting for these derivatives is discussed in Note 5. “Derivatives and Fair Value Measurements” to the accompanying unaudited condensed consolidated financial statements. As of June 30, 2023, the Company held average rate options with an aggregate notional amount of $486.0 million Australian dollars to hedge currency risk associated with anticipated Australian dollar expenditures over the nine-month period ending March 31, 2024. As of June 30, 2023, the Company also held purchased collars with an aggregate notional amount of $514.0 million Australian dollars related to anticipated Australian dollar expenditures during the nine-month period ending March 31, 2024. Assuming the Company had no foreign currency hedging instruments in place, its exposure in operating costs and expenses due to a $0.10 change in the Australian dollar/U.S. dollar exchange rate is approximately $199 million for the next twelve months. Based upon the Australian dollar/U.S. dollar exchange rate at June 30, 2023, the currency option contracts outstanding at that date would limit the Company’s exposure to approximately $160 million with respect to a $0.10 increase in the exchange rate and approximately $165 million with respect to a $0.10 decrease in the exchange rate for the next twelve months. Diesel Fuel Price Risk The Company expects to consume 90 to 100 million gallons of diesel fuel during the next twelve months. A $10 per barrel change in the price of crude oil (the primary component of a refined diesel fuel product) would increase or decrease its annual diesel fuel costs by approximately $23 million based on its expected usage. As of June 30, 2023, the Company did not have any diesel fuel derivative instruments in place. The Company partially manages the price risk of diesel fuel through the use of cost pass-through contacts with certain customers.