Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



There's More Than 1 Way to Clean up Chinese Coal Plants

Environmentalists would have you believe that the only way to make coal cleaner is to stop using it. That's just not the case, particularly in pollution-challenged China. For example, the country is again rumored to be discussing a ban on low-quality coal imports.

The U.S. Experience
Peabody Energy (NYSE: BTU  ) often discusses an incredible series of statistics. Between 1970 and 2011, the United States increased its use of coal by 170%. Based on that number, you might expect that pollution ramped up, as well. But it hasn't. In fact, regulated emissions from coal-fired power plants have fallen by nearly 90%.

That didn't happen in a straight line, of course, and things had to get bad before they got better. But that sounds strangely familiar -- almost like China today. In fact, China is only just beginning to industrialize, a process that the United States went through long ago. The U.S. industrial revolution is something we read about in textbooks today, but it didn't happen without its own troubles, like pollution, overcrowded cities, and poor working conditions.

(Source: unbekannt, via Wikimedia Commons)

Still a tough market
That said, the coal market is struggling today. For example, Peabody posted a first-quarter loss of almost $0.20 a share, nearly four times as large as the year-ago figure. Commenting on the coal export market, CEO Gregory Boyce said, "while current seaborne markets remain challenged, we look for fundamentals to improve as demand continues to increase and supply growth moderates. Peabody's position in the low-cost U.S. basins and high-growth Asian markets allows us to navigate current market pressures and benefit from long-term demand trends."

In other words, it sees a bright future, and Asia is going to play a big part in that. Arch Coal (NYSE: ACI  ) , which, like Peabody, is big in the low-cost Powder River Basin, or PRB, region on the West Coast, is also positive about the long term. It points out that Asia is slated to bring on more than 150 gigawatts of coal-fired electric power over the next four years.

And Arch was very clear about the future in its annual report, stating: "We expect U.S. coal to play an increasingly important role in global coal supply in the years ahead ... Arch is focused on expanding our participation in global markets over time." The company's solid position on the West Coast -- the PRB accounts for about 45% of its business -- will help that along, since it's relatively close to Asia.

That said, like Peabody, Arch posted weak first quarter earnings. The roughly $0.60 loss per share was nearly twice the loss of the year-ago period. And Arch has been selling assets and raising cash to ensure it survives coal's malaise. It should, considering it has more than $1 billion in cash on the balance sheet. But it may not be pretty.

Cleaning up China
The cleanup taking place in China is actually good news. The nation is working on integrating newer coal technologies like installing scrubbers at existing plants and building coal gasification facilities that turn coal into cleaner-burning gas before it's used. China is also looking to step up the value chain in coal, as it again considers banning low-quality imports.

(Source: SeaWiFS Project, NASA/Goddard Space Flight Center, and ORBIMAGE, via Wikimedia Commons)

The country most affected by that will be Indonesia. But if China can't get its coal from Indonesia, it's going to have to turn to other sources. That's great news for Peabody, which has thermal coal operations in Australia and a 50/50 joint venture with a large Chinese coal importer. Arch mines for coal only in the United States, so it isn't as well-positioned. But that likely means a delayed impact -- not a missed opportunity.

China looking to clean up coal isn't a bad thing for coal miners with a global sales footprint like Peabody and Arch. The duo's recent results suggest that they are still dealing with a tough market. But, as the ancient proverb says, "This too shall pass." And China's environmental efforts will help that process along.

This U.S. trend is why domestic coal miners are looking to the export market
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

Read/Post Comments (1) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 19, 2014, at 10:35 AM, barakn wrote:

    The first sentence ignores a pollutant of great concern and then paints all environmentalists with one long brush stroke. The pollutant is CO2, and certainly some environmentalists would prefer that coal simply stop being burned to prevent its release. Other environmentalists, however, would be happy if industry could sequester the CO2.

    The focus on emissions hides a lot of other pollution, such as during the mining process (especially hilltop removal). Also lowered emissions are achieved by better trapping of fly ash, which is frequently dumped as a slurry into a pond. Because these ponds have a non-zero failure rate, the ash can still contaminate the environment years, decades, and perhaps even centuries after it was generated.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2946782, ~/Articles/ArticleHandler.aspx, 8/28/2015 5:39:53 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Reuben Brewer

Reuben Gregg Brewer believes dividends are a window into a company's soul. He tries to invest in good souls.

Today's Market

updated 8 hours ago Sponsored by:
DOW 16,654.77 369.26 2.27%
S&P 500 1,987.66 47.15 2.43%
NASD 4,812.71 115.17 2.45%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/27/2015 4:01 PM
ACI $7.03 Up +1.94 +38.11%
Arch Coal, Inc. CAPS Rating: **
BTU $2.28 Up +0.75 +49.02%
Peabody Energy Cor… CAPS Rating: **