Asia Throws Coal a Lifeline

With demand in the United States waning recently, major coal companies here in the States have been bailed out by a burgeoning export market. To date, both Peabody Energy  (NYSE: BTU  ) and Arch Coal  (NYSE: ACI  ) witnessed a dramatic uptick in demand from China and India. Helped, not only from increased coal-fueled energy production, but also by one of the coldest winters those two countries have experienced in quite a long time, the U.S. exported a record amount of coal in 2012. Expectations are for this export demand to continue. So, who else will capitalize on this opportunity? Tune in below for Motley Fool materials analyst Taylor Muckerman's take.

A great chance to dominate the export market due to a strong position in Australia
The coal industry in the United States has been in a state of flux since the arrival of a cheaper alternative for energy production: natural gas. Exports are becoming a much bigger part of the domestic coal landscape, and Peabody Energy has deals in place to get its cheaper coal from the Powder River and Illinois Basins to India, China, and the EU. For investors looking to capitalize on a rebound in the U.S. coal market, The Motley Fool has authored a special new premium report detailing exactly why Peabody Energy is perhaps most worthy of your consideration. Don't miss out on this invaluable resource -- simply click here now to claim your copy today.


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  • Report this Comment On February 06, 2013, at 5:39 PM, Crescent2 wrote:

    For greater clarity, yes, BTU expects seaborne thermal coal demand to grow in 2013 in excess of 40 million tons. But it also expects

    U.S. thermal exports to decrease 10 million tons and U.S. met exports to decrease 20 mil tons (representing a 25% decline in total U.S. exports

    from 120 million tons to 90 million million tons). Also for greater clarity, BTU was as forthcoming as one could expect regarding the

    persistent weakness in global coal markets with something slightly akin to faint hope with respect to "good indications" of improvement. Writing

    down assets by 10% is the reality. "Good indications" of improvement is not. I'm not sure how a strong a 4th quarter improvement at ANR as a result of "strong exports" flows from anything BTU said, but I guess we'll see on the 14th.

  • Report this Comment On February 07, 2013, at 10:14 PM, TMFrunAMuck wrote:

    @Crescent2 - Thank you for your comment.

    The strength in exports in 2012 is important for ANR because 70% of its met coal production is exported.

    Yes, assets have been written down, but that is commonplace in depressed pricing environments.

    BTU mgmt also stated that it expects 900M tons of addt'l demand to come from increased coal-fired power generation to come online in the next few years.

    With several steel companies describing strengthening markets around the globe (ex-Europe), that spells good things for the met coal market.

    All told, ex-US market strength and the likelihood of rising nat gas prices equate to a positive future for coal companies that have been beaten down lately, all else held equal.

  • Report this Comment On February 08, 2013, at 1:59 PM, barakn wrote:

    Also note coal price hikes in Europe because of strikes in Colombia, http://www.reuters.com/article/2013/02/08/markets-coal-physi... Europe is using more American coal despite the economic woes because of a variety of factors ranging from the American natural gas boom to decreasing reliance on nuclear power. http://www.washingtonpost.com/world/europe-consuming-more-co...

  • Report this Comment On February 08, 2013, at 4:38 PM, Crescent2 wrote:

    Thanks for your reply. Below are a few comments on your comments. I actually care to hear why else you might be bullish on ANR going into earnings, but the data provided isn’t supportive.

    “The strength in exports in 2012 is important for ANR because 70% of its met coal production is exported.”

    Correct, the strength in exports is important to ANR. And a leading producer stated that it expects U.S. exports to decline 25% in 2013. I take that as a decidedly negative short-term signal. It’s fine if you want to dismiss it in favor of other data points, but you seem to be misrepresenting it.

    “Yes, assets have been written down, but that is commonplace in depressed pricing environments.”

    It is commonplace to write down assets when expectations are lower, which flows from a depressed pricing environment.

    “BTU mgmt also stated that it expects 900M tons of addt'l demand to come from increased coal-fired power generation to come online in the next few years.”

    Management expects, you expect, I expect and virtually everyone who follows coal expects increased demand in the long-run (read > 1-year). But regarding a view on ANR’s 4Q 2012 and 2013, which statement strikes you as more directly relevant – we expect U.S. exports to decrease 25% in 2013 or we expect 900m tons of additional coal power generation in the next few years? Hint: ANR is a U.S. producer and virtually all of its exports are metallurgical.

    “With several steel companies describing strengthening markets around the globe (ex-Europe), that spells good things for the met coal market. All told, ex-US market strength and the likelihood of rising nat gas prices equate to a positive future for coal companies that have been beaten down lately, all else held equal.”

    I actually agree this. That is, a bearish short-term view is not incompatible with a long-term bullish view.

  • Report this Comment On February 08, 2013, at 4:59 PM, Crescent2 wrote:

    One more point for completeness with respect to the short-term/long-term distinction, I wouldn't expect rising natural gas prices do much of anything for ANR until it gets north of $4.00 (since 20% of its reserves reside in NAPP and 63% in CAPP) for a prolonged period. And I wouldn't count on sustained periods of > $4.00 natural gas given that the breakeven production at almost every shale is sub-$4.00, and even lower when you consider that most drilling decisions are made half-cycle (i.e., ignoring sunk costs). So, again, while I do expect, the same as everyone else, that demand will increase and we will one day see higher prices, it "ain't" coming any time soon in any prolonged fashion.

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