Shares of coal-miner Peabody Energy (BTU 2.05%) are soaring today, up double digits by the mid-afternoon. The primary fuel source was its fourth-quarter results, which included its outlook for 2022.
What caught the market's attention was Peabody Energy's outlook. The coal-mining company expects volumes of thermal coal (used by electric utilities to produce power) to rise in 2022 as it increases production to meet customer demand. Meanwhile, it sees export volumes for met coal (used to make steel) rising substantially in 2022, driven by a full year of production from two mine expansions.
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There's no doubt that these are positive catalysts that could continue to fuel Peabody Energy's stock in the near term. Steel demand should continue rising in the coming years as governments spend more money to rebuild and expand infrastructure. Meanwhile, demand for thermal coal is surging these days because of increasing global-electricity consumption as the economy recovers from the pandemic.
However, the longer-term outlook for coal isn't nearly as bright. Thermal coal is a key contributor to climate change. Because of that, demand for coal will decline over the next few decades. The descent could be substantial -- falling as much as 85% to 90% by 2050 -- depending on how quickly the global economy replaces it with cleaner alternatives like renewable energy.
Meanwhile, steelmaking coal also contributes to climate change. Because of that, steel producers are looking for cleaner ways to make coal. Cleaner-burning natural gas already produces about 30% of global steel. Meanwhile, emission-free hydrogen produced by renewable energy could replace both fossil fuels in producing steel in the future.
These demand headwinds will eventually weigh on steel consumption and prices, which will trickle down to Peabody Energy's stock. Because of that, even with the near-term optimism, it's hard to make a long-term investment case for the coal miner.
