April to September, coal imports increased 44% in India. That type of demand growth will help boost long-term results at Peabody Energy (NYSE: BTU ) , Cloud Peak Energy (NYSE: CLD ) , Arch Coal (NYSE: ACI ) , and Alpha Natural Resources (NYSE: ANRZ ) .
The other big market in Asia
China consumes around half of the world's coal. But the country isn't the only giant in Asia moving up the economic food chain. India has a massive and still growing population, is developing economically, and has big plans to power the country.
For example, Cameco (NYSE: CCJ ) , which mines uranium, notes that India is planning on building 14 new nuclear power plants by 2022, with seven currently under construction. Arch coal, meanwhile, notes the 108 coal plants expected to be added by 2017. That's 122 new power plants.
The scale difference, however, keeps China as the top headline. For example, China, which is increasingly looking for cleaner alternatives to coal, is planning on building 56 new nuclear plants. And using half of the world's coal makes every other nation look like small potatoes, even though Arch expects India to build more new coal plants than China, which is slated for 103.
So underneath the covers there are some interesting trends. For example, Cameco will increasingly have to focus its attention on China's fast-growing nuclear use. But coal companies clearly need to start looking more closely at India.
Peabody Energy's Australian assets are well positioned to serve India. In fact, the Aussie dollar's decline versus the U.S. dollar has been a benefit to the company's operations there. Australian thermal coal makes up about 15% of its overall business. That said, inroads made today based on a relative price advantage compared to the U.S. miners provides an opportunity to build market share that it can eventually fill from its U.S. operations—U.S. thermal coal accounts for about half of the coal giant's revenue.
Currencies are a near-term problem for U.S. coal miners, since, according to Alpha, "most U.S. thermal coal production, and essentially all CAPP thermal coal production, [is] uneconomic" to export. But that's today, not tomorrow. India is already increasing imports and still has plans for around 100 new coal plants. Demand is likely to keep going up and, eventually, U.S. coal will become more competitive again.
That will be a benefit to Alpha, which is well aware of the changing demand profiles of China and India. It expects electricity from coal to grow at an annualized rate of 5.2% in India versus 4.4% in China through 2020. Look for the company, which already serves India through its extensive East Coast port network, to increasingly focus its efforts on the nation.
Arch, meanwhile, has notable scale in both the Illinois and Powder River (PRB) coal basins, the two cheapest domestic coal regions. And it has extensive access to ports on both coasts. That will put it in good position to play catch up. And it expects exports to grow over time from about 10% of its business to 25%.
Cloud Peak, however, probably has the most work ahead. Although it operates out of the low-cost PRB, it doesn't have the port access of Arch or Alpha. So it is waiting for more West Coast port capacity to be added. However, with a relatively weak export market today, being a little behind the curve probably isn't so bad. Look for Cloud Peak to use its South Korean business to gain a foothold in China and India.
When it comes to coal, India should become an increasingly important story. Peabody is already positioned to satisfy the nation's growing coal demand, but Arch, Alpha, and Cloud Peak are eagerly waiting in the wings.
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