Like a horror-movie protagonist whose car won't start, the last thing investors want is to discover they're in the wrong vehicle when the stakes are highest.
With the global coal industry in the midst of a permanent structural transformation, the importance of selecting the right vehicle for coal has perhaps never been greater. Despite a 69% decline in fourth-quarter earnings from the mesmerizing profitability of the prior-year period, Peabody Energy (NYSE: BTU ) remains supremely positioned to keep long-term investors moving through the uncertainty and upheaval of a shifting marketplace for coal.
This structural transformation refers to the emerging dominance of the Asia-Pacific region in shaping the dynamics for global coal trade. As Peabody CEO Gregory Boyce confirms, "China and India have permanently changed the seaborne metallurgical and thermal coal market landscape." Peabody enjoyed a 37% increase in Australian coal shipments during the second half of 2009 compared to the first half, and overall Australian exports reached a record annual mark of 277 million tons. Peabody anticipates a further 8% growth rate in seaborne Pacific coal markets for 2010.
China and India form the heart of that expanding demand, and this is no mere temporary spike. Although India's imports of thermal coal rose 60% in 2009 to 57 million tons, stockpiles remain low, while demand is set to expand further still. The 72 gigawatts of new coal generation coming online worldwide in 2010 corresponds to a further 300 million tons of annual thermal coal demand, and India is leading the charge with 55 gigawatts currently under construction. China, despite its vast hoard of coal resources, shifted to a net importer in 2009 to the tune of 70 million tons of thermal coal.
Meanwhile, back in the USA, the enormous stockpiles of coal accumulated by utilities in 2009 is finally showing signs of shrinkage. As railroad operators such as CSX (NYSE: CSX ) and Burlington Northern Santa Fe (NYSE: BNI ) witness grueling deterioration of coal volumes shipped, Peabody's observation that stockpiles fell at a record clip in December suggests some measure of relief on the horizon. Particularly for Appalachian miners such as Massey Energy (NYSE: MEE ) and Consol Energy (NYSE: CNX ) , where geography isolates miners from the seaborne Pacific trade, Peabody's expectation for domestic consumption to increase by about 70 million tons forecasts measurable stabilization within the domestic coal markets.
Coal miners rewarded shareholders generously during 2009, and Fools who heeded my bullish sector call probably enjoyed some tidy gains. I am not often a fan of sector ETFs, but the Market Vectors Coal ETF (NYSE: KOL ) offers an enticing combination of domestic and international holdings. Shares of Chinese producer Yanzhou Coal Mining (NYSE: YZC ) have abruptly shed 18% over the past few weeks, prompting this Fool to add the stock to his silverminer CAPS portfolio.
If I am tasked to select one top vehicle for coal, however, Peabody reigns supreme. With an aggressive capex budget above $600 million to support a doubling of Australian production capacity by 2014, a stable revenue source from quality U.S. mining assets like Bear Run, and a foot in China's door, Peabody Energy sits upon a throne of strategic strength that competitors can only dream of. When an inevitable price correction or market disruption comes around again, Peabody investors will remain calm in the comfort of a vehicle well chosen.