Alpha Met: Steel’s Future
Alpha Metallurgical Resources (AMR) and Warrior Met Coal (HCC) are leading U.S. producers of metallurgical (met) coal, a critical ingredient for high-quality steel production powering global infrastructure, automotive, aerospace industries, and more. Both companies navigate the cyclical steel market with distinct strengths, but AMR stands out as the more compelling opportunity, embodying the mental model of autocatalysis. Like a rising lake lifting all boats, AMR’s diversified portfolio, majority-owned Dominion Terminal Associates (DTA) port enabling tailored coal blending, low 3% unionized workforce, and strong export relationships—particularly with India’s growing steel sector—position it to be naturally lifted by India’s surging demand for met coal. With operational agility, cost efficiencies, and a shareholder-focused approach, AMR’s pronounced cyclicality creates attractive entry points during downturns and outsized potential in recoveries, making it a standout investment compared to Warrior’s more specialized, labor-constrained model.
The steel industry’s evolution is a testament to industrial ingenuity, where the primal fusion of iron ore and coal shapes the skeleton of modern progress. As Clayton Christensen detailed in The Innovator’s Dilemma, minimills disrupted the landscape starting in the 1960s, using electric arc furnaces and abundant U.S. scrap steel to produce rebar, wire rods, and basic shapes at lower costs, capturing over 60% of U.S. steel production today, led by firms like Nucor. Their reliance on scrap, however, limits their output: long products up to 200 mm cross-section and hot-rolled coils 1–12 mm thick and 2,000 mm wide, constrained by impurities like copper and tin that affect quality consistency.
Integrated mills, by contrast, have carved out a resilient niche, leveraging met coal—also known as coking coal—to fuel blast furnaces that reduce iron ore with precision. These mills produce high-quality steel for demanding applications: heavy plates up to 200 mm thick and 5,000 mm wide for energy infrastructure and shipbuilding, ultra-thin 0.1 mm cold-rolled sheets for automotive high-strength steels (AHSS), and specialty alloys for aerospace turbines or high-carbon tools. Their control over virgin materials, enabled by met coal’s purity, supports tailored alloying and advanced processes like vacuum degassing, securing their role in premium markets despite sustainability experiments like hydrogen reduction.
In emerging markets like India, this dynamic shifts dramatically. Unlike the U.S., where abundant scrap fuels minimills, India’s rapid growth—fueled by infrastructure and industrialization—faces a scrap shortage. This scarcity elevates the role of integrated mills, which rely on met coal to meet soaring steel demand, making high-quality coking coal imports critical. The EY report “India’s Coking Coal Strategy” (September 2025) highlights that India aims to increase domestic coal blending from 10–12% to 30% by 2030 to optimize furnace performance and reduce its 90% import dependency (projected at 115 million tons by 2030). This reflects a growing need for blended coal, as domestic high-ash coal (25–35%) must be mixed with low-ash imports (~9%) to meet steelmaking standards.
Two U.S. met coal giants, AMR and HCC, stand out as low-cost seaborne producers navigating these cycles. AMR, among the top U.S. met coal producers by volume, operates a diversified portfolio of underground and surface mines in Virginia and West Virginia, delivering 17.1 million tons in 2024 and projecting 15–16 million in 2025 at cash costs of $101–$107 per ton (midpoint $104). Its high-quality met coal, with 71% exported, reaches global steelmakers via its majority-owned DTA port in Virginia. This stake ensures capacity and provides a critical ability to blend various met coal grades on-site, tailoring coal to meet diverse buyer specifications, while rail transport takes it to the port for efficient delivery to Europe and India.
Warrior, mining premium low- and mid-volatility coals from Alabama’s Blue Creek seam, boasts reserves supporting 40 years of output from its active mines, with the Blue Creek expansion poised to extend this further. Its logistics—primarily cost-effective barges, supplemented by rail to the Gulf Coast’s McDuffie Terminal—offer savings in downturns, though third-party port tariffs add variability. In 2022’s price surge, AMR’s export focus and operational agility outshone Warrior, which faced a union strike. In 2024–2025’s softer market ($120–$130/ton), Warrior’s barge efficiency and 10% margin guidance cushioned it better than AMR, which navigated volume dips, weather disruptions, and higher rail costs. Warrior’s Blue Creek project, set to boost output from mid-2025, may challenge AMR’s volume lead over time. While Warrior’s focus on premium low- and mid-volatility coals aligns with high-end demand, buyers typically avoid relying on a single coal type, preferring blended grades to balance strength, reactivity, and cost efficiency. This underscores the strength of AMR’s diversified portfolio, which leverages its DTA blending capabilities to offer a wider range of tailored solutions compared to Warrior. AMR’s ability to mix high-vol A/B, mid-vol, and other grades—supported by 1.1 million tons of dedicated storage—provides a strategic edge, particularly as India seeks to scale blending to meet its steelmaking needs. Their strengths diverge: Warrior’s coal sets a quality benchmark, earning customer loyalty, while AMR’s blending flexibility and export agility—potentially with shorter East Coast shipping times to markets like India—shine in tight markets. AMR’s 3% unionized workforce contrasts with Warrior’s 79%, avoiding strike risks like those that disrupted Warrior in 2021–2023. Both maintain strong balance sheets (e.g., AMR’s $449 million cash, no net debt), ensuring resilience.
However, after obtaining a recent NLRB case via a FOIA request, I question the transparency of Warrior’s management during labor negotiations. The case, Warrior Met Coal Mining, LLC and United Mine Workers of America, International Union, is available here. You can come to your own conclusions.
Globally, coal faces a wave of negative sentiment, with popular opinion often painting it as environmentally detrimental. This backlash primarily targets thermal coal for power generation, yet met coal—essential for steel production—has suffered guilt by association. Despite global efforts to explore alternatives like hydrogen reduction, no viable substitute for met coal or coking coal exists, as it remains indispensable for high-quality steelmaking. I believe this broad anti-coal sentiment will eventually decouple from met coal, allowing its critical role to shine, especially as steel demand surges. Valuation reveals the opportunity’s asymmetry. At market caps of $1.8–$2.5 billion (4–5x forward EBITDA), these firms can be acquired for $1–2 billion net of cash, yet in high-price years, they could generate $1 billion or more in annual cash flows, backed by decades-long reserves. Even in soft markets, positive free cash flow persists, but troughs trigger selloffs that create compelling entry points for patient investors.
To me, AMR presents a particularly compelling opportunity for several reasons. Its low unionization—only 3% of its workforce—ensures operational stability, a stark contrast to Warrior’s labor vulnerabilities. The DTA port stake offers not just access but a unique ability to blend met coal grades, a critical advantage for India’s importers, who increasingly require customized coal mixes—bolstered by AMR’s strong Asian relationships. Management’s owner-aligned mindset, led by Chairman Michael Gorzynski’s significant stake and COO Jason’s expertise, has driven standout efficiencies, like Q2 2025’s $100.06/ton costs, the lowest since 2021, despite market pressures.
A key aspect of AMR’s appeal lies in its pronounced volatility relative to peers, which I view as a strategic advantage. During met coal downturns, AMR feels the squeeze more acutely—volumes waver, rail costs weigh heavier—triggering sharper selloffs that create attractive buying opportunities, as observed in Q2 2025. Yet, this sensitivity positions AMR, in my opinion, to potentially outperform in recoveries: should met coal prices surge to $350–$400+ per ton, driven by supply disruptions or steel demand spikes, its export efficiency, port blending capabilities, minimal union risk, exceptional management with skin in the game, and operational leverage could deliver exceptional returns. This diversified blending approach opens additional opportunities, aligning with India’s goal to increase domestic blending to 30% by 2030, where AMR’s tailored mixes can meet the rising demand for optimized coal grades. AMR’s commitment to shareholder returns further enhances this profile, as evidenced by its recent resumption of the share buyback program following Q2 2025’s strong cost performance—reiterating a focus on opportunistic repurchases that has seen over $850 million returned since inception, outpacing Warrior’s more conservative approach.
“If we have a business about which we’re extremely confident as to the business results, we would prefer that it had higher volatility rather than lower. We will make more money out of a business where we know where the endgame is going to be if it bounces around a lot… When we see a business about which we’re very certain, but the world thinks that its fortunes are going up and down, and therefore it behaves with great volatility, we love it.”
Warren Buffett
India’s trajectory supercharges this thesis. Its Production Linked Incentive (PLI) scheme targets 300 million tons of steel capacity by 2030, fueling infrastructure and renewable energy. With negligible local met coal and insufficient scrap for minimills, India’s import needs—projected at 115 million tons annually by 2030—include a growing demand for mixed met coal grades. The EY report notes India’s push to diversify imports, targeting increased sourcing from the USA alongside traditional suppliers like Australia and Russia, with steel majors actively securing supply by acquiring coal companies globally—such as JSW Steel’s stake in Australia’s Whitehaven Coal in 2024. According to the report, India’s steelmakers require blending to optimize furnace performance, a need AMR’s DTA facility is well-positioned to address with its diversified blending capabilities, enhancing its strategic fit with India’s evolving import strategy.
In steel’s timeless forge, cycles breed opportunity. AMR, with its cyclicality, resilience, and alignment with India’s rise, positions itself as a dynamic play—poised to capitalize when the world rebuilds.
Simplified
Imagine making money from coal that helps build strong steel for cars, buildings, and planes! Two big U.S. companies, AMR and Warrior, dig up this special “met coal,” but AMR stands out because it can mix different types at its Virginia port to create the perfect blend, especially for places like India, which needs 115 million tons by 2030 to grow its steel industry. Even though people often dislike coal due to pollution from a different type (thermal coal), met coal is super important and has no replacement—soon, I think the bad rep will fade, letting met coal shine. AMR’s smart blending and low drama (only 3% unionized vs. Warrior’s 79%) should make it a very low-risk bet, especially since they’re a low-cost producer and should generate many billions of dollars over the coming decades!