Why Coal Stocks Crashed Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Coal stocks are taking it on the chin today after being hit by two body blows over the weekend. Alpha Natural Resources (NYSE: ANR  ) , Arch Coal (NYSE: ACI  ) , and Peabody Energy (NYSE: BTU  ) all fell 10% or more at some point today.

So what: The first hit was due to reports over the weekend that President Obama will include existing power plants in new emissions regulations due out this week. The president will make a speech on climate change tomorrow at Georgetown University and coal plants are a clear target, which will reduce demand for coal.  

The second blow was a reduction in China's growth estimates by Goldman Sachs earlier today. That helped drive Chinese stocks down 5.3% today, and lower demand means less growth, or even contraction, in coal demand.

Now what: Demand for coal in the U.S. has been declining for years and further regulation could be a huge blow to coal miners. The only savior for miners has been hope that China will increase demand and therefore export growth would follow. But if China's economy is slowing, then it pulls the rug out from under that thesis, putting more pressure on miners who are barely covering their costs right now. I would stay far away from coal stocks because the long-term trends simply aren't in the industry's favor.


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