In an industrial-strength version of Bowie's Space Oddity, the coal sector appears to be floating in a most peculiar way. Back here at ground control, this Fool thinks there might be something wrong. Can you hear me, Major Coal?
Coal mining stocks have been on an absolute tear in recent days, bolstered by dramatic reversals of analysts' sentiments and morsels of positive news from miners like Patriot Coal
Don't get me wrong ... I'm not complaining. I'm long some coal stocks myself (see disclaimer below), and I've been consistently bullish on coal's long-term outlook from the beginning of the sector's sub-orbital descent. Given the range of contrary near-term indicators that I've been documenting lately, however, the sudden exuberance of this coal rally feels a bit like a space oddity.
For insight, let's peek at last week's earnings from Patriot Coal, which was spun off from Peabody Energy
Looking forward, Patriot issued guidance that implies flat gross margins for the rest of 2009. Contracted prices for Appalachian coal average $58 per ton, compared to expected costs of $56 to $59 per ton. For the Illinois Basin, prices of $38 per ton will be offset by costs of $35 to $38 per ton. As a final note of caution, Patriot also echoed competitors by noting that clients are requesting deferrals of contracted volumes of both thermal and metallurgical coal.
I remain decidedly bullish on the long-term outlook for coal, but the degree of divergence between undeniable near-term challenges and the enthusiasm of this rally led this Fool to end his CAPS pick for Patriot Coal until Major Coal returns to Earth.
The "Coal" tag within the Motley Fool CAPS community lists 21 coal companies. Find out what other investors are saying about the stocks you're watching, or share your Foolish thoughts with us. CAPS is free and fun!
Fool contributor Christopher Barker wishes he could squeeze mediocre coal miners into diamonds. He can be found blogging actively and acting Foolishly in the CAPS community under the username TMFSinchiruna. The CAPS pick he ended for PCX was through his silverminer portfolio. He owns shares of Arch Coal, Massey Energy, Peabody Energy, and Teck Resources. The Motley Fool scrubs its disclosure policy before releasing it into the atmosphere.