Demand for thermal coal, which is used primarily to generate electricity, is expected to rise 6% to 7% in 2013, with further gains of 2% in 2014. Shipments are forecast to total 60 million to 70 million tons this year, up from a previous forecast of 20 million to 25 million tons.
Demand for met coal used in steel making is expected to slip from a previous estimate of 115 million tons to 95 million, rising to 105 million tons in 2014. Sterne Agee lowered its pricing expectations for met coal in 2013 from $190 a ton to $165 a ton and its 2014 pricing forecast from $225 a ton to $195.
Sterne Agee’s top picks among the large coal stocks are Arch Coal Inc. (NYSE: ACI), Consol Energy Inc. (NYSE: CNX) and Peabody Energy Corp. (NYSE: BTU). Its mid-cap pick is Alpha Natural Resources Inc. (NYSE: ANR) and its small-cap choice is James River Coal Co. (NASDAQ: JRCC). All are rated as Buy. Walter Energy Inc. (NYSE: WLT) is rated Neutral. The the analyst notes that risks include low electricity generation growth, below $3.00 natural gas prices, metallic destocking on a global level, a stronger U.S. dollar and further regulatory actions targeted to restrict U.S. coal consumption and production.
Arch Coal trades this morning at around $4.10, in a 52-week range of $3.98 to $8.86. The consensus price target from Thomson Reuters is around $6.50.
Consol Energy trades at near $32.00, in a 52-week range of $26.41 to $37.39. The consensus price target is around $42.00.
Peabody trades at around $16.80, in a 52-week range of $16.43 to $29.84. The consensus price target is around $27.85.
Alpha Natural Resources trades around $5.70, in a 52-week range of $5.28 to $10.74. The consensus price target is around $9.90.
James River trades around $2.10, in a 52-week range of $1.46 to $5.89. The consensus price target is around $2.65.
Walter Energy trades at around $12.10, in a 52-week range of $11.16 to $48.99. The consensus price target is around $26.60.