Please ensure Javascript is enabled for purposes of website accessibility

Shares of Peabody Energy Jump on Rising Coal Prices

By Tyler Crowe - May 8, 2020 at 12:58PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Higher prices for Peabody's metallurgical coal are giving Wall Street hope that the company can turn to profitability.

What happened

Shares of coal giant Peabody Energy (BTU 1.74%) are up 21.6% as of 11:45 a.m. EDT today. The surge in the company's stock comes as the reported price for seaborne metallurgical coal -- also known as coking coal -- was on the rise this week.

So what

According to a report from Metal Bulletin, the price of free-on-board hard coking coal delivered to China increased $2.80 per metric ton to $110.43 per metric ton during the week. This is critically important for Peabody because its metallurgical coal business is one of the company's long-term value propositions. While thermal coal used in power plants is losing market share to natural gas and renewables, there are few alternatives to metallurgical coal for transforming iron ore into steel.

Overhead shot of a coal mine loading terminal.

Image source: Getty Images.

Seaborne metallurgical coal shipments were drastically impacted in the most recent quarter, where Peabody reported its free-on-board seaborne coking coal realized prices were around $95 per ton compared to $111-per-ton costs for that particular segment. Coking coal prices were incredibly low this past quarter, as much of China's steelmaking capacity was shut in.

Now what

Coal has been an incredibly tough business to be in over the past few years. Despite efforts to control costs, it continues to lose market share to natural gas and renewables in the U.S. Even if metallurgical coal was to get back to profitable prices, the bulk of Peabody's operations are in North American coal. It has already announced several rounds of layoffs at a few of its Powder River Basin properties in Wyoming this year. Peabody has already gone through Chapter 11 bankruptcy in the past few years, and yet the company's financials continue to deteriorate. It will take a monumental change in the way we generate power for Peabody to stage a significant turnaround. Until we see any signs of that happening, Peabody's stock is best avoided.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Peabody Energy Corporation Stock Quote
Peabody Energy Corporation
$18.76 (1.74%) $0.32

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.