Coal Risks Live On with Rising Coal Supplies and Trends (KOL, BTU, ANR, JRCC, PCX, JOY)
It was good news on the surface that China decided to cut its overnight interest rates. We have not seen this since during the great recession and most expected China to just lower its reserve requirements. The coal industry has an issue to worry about, or one to continue worrying about. Is this the prelude to a hard landing in China? Remember, China has to grow at about 8% for it to feel like expansion elsewhere. The coal industry has been battered as hard as the solar sector in many cases. It is a sector which hangs on for life if you include the coal-fired electricity plants being shuttered in the United States with slower steel demand, a lack of demand coal demand from China, and a full storage capacity in China. Much of this is not new, but what is new is that the situation is apparently getting worse rather than better.
We have heard reports that roughly 30 of the large shipping vessels used to ship coal which are effectively floating off of China’s coastal ports waiting to have the coal sold and to put delivery somewhere. Another report showed that coal stockpiles at the Qinhuangdao port, China’s largest port for coal, are now about 40% higher from a year ago. Market Vectors Coal ETF (AMEX: KOL) fell 0.7% on Thursday to $24.14 and the 52-week range is $23.48 to $50.62. Things are worse if you look at many of the components and smaller coal companies.
Peabody Energy Corp. (NYSE: BTU) rose 0.9% on Thursday to $24.31 but the 52-week range is $22.18 to $61.85. This one has had a rough year, mostly due to slowing domestic coal demand and due to plant closures, but the China coal situation has to be a worry for all US coal producers when it is all said and done.
Nomura offered more concerns over plant retirements and slowing steel demand being a real risk for central-Appalachian coal miners like Alpha Natural Resources, Inc. (NYSE: ANR), where shares hit a new 52-week low closing price of $9.57 after a 1.5% drop. Nomura also noted that James River Coal Co. (NASDAQ: JRCC) and Patriot Coal Corporation (NYSE: PCX) face the same Central-Appalachian woes.
Joy Global, Inc. (NYSE: JOY) got crushed on two analyst downgrades ahead of earnings and it makes equipment used in coal mining and it is still too soon to know if this one has found a bottom after seeing its stock crushed. At $57.33, its 52-week range is $53.25 to $101.44.
JON C. OGG