The 1 Piece of Data Coal Companies Have Been Dying to Hear Isn't As Promising As They Hoped

By Tyler Crowe – Mar 28, 2014 at 10:20AM

OTC: BTU

Peabody Energy Corporation

Utilities' stocks of coal may be at historical lows, but it won't lead to a buying spree like Peabody Energy and Arch Coal may hope for.

Coal companies have been continually citing one data point they believe will lead to a turnaround in the coal markets: Inventories at power generation facilities are at historical lows and, today, are equivalent to less than two months' worth of supply. As promising as this may sound for coal producers like Peabody Energy (BTU) and Arch Coal (NYSE: ACI), they seem to be missing one aspect of this data: These historical lows are by design.

With natural gas production continuing to soar, utility companies like Southern (SO 1.15%) are deliberately not buying coal or natural gas on long-term contracts because they want to get the best price, so there has been a major uptick in total coal purchased on the spot market over the past year. Find out why this may continue to keep overall coal volumes down over the next couple years, and why Peabody, Arch, and Alpha Natural Resources (NYSE: ANR) have much more to deal with than just sale volumes, by tuning into the video below.

Tyler Crowe has no position in any stocks mentioned. You can follow him at Fool.com under the handle TMFDirtyBird, on Google+, or on Twitter, @TylerCroweFool.

The Motley Fool recommends Southern Company. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.