Must-know: Why coal stocks haven’t kept pace with markets
Falling coal stock prices
While broader market indices such as the S&P 500 and Down Jones have performed well so far in 2014, major coal stocks have struggled to keep pace with the U.S. equity markets. Rising oil prices and higher demand for electricity in the first quarter was caused by severely harsh winters. It provided respite to some coal stocks during the first quarter. Major coal stocks have been falling since April and May as coal prices haven’t seen an uptick as analysts expected. Also, President Obama is pushing for cleaner energy. The Environmental Protection Agency (or EPA) has come up with stricter regulations for coal-fired power plants in order to reduce carbon emission. For an overview of the coal industry in the U.S. to learn about the troubles coal producers (KOL) are going through, read the Market Realist series, Must-know: Why coal producers’ stocks are declining.
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As seen from the previous chart, shares of Alpha Natural Resources (ANR) have been the worst performing major coal producer since the beginning of 2014—losing 53%. ANR derives almost equal revenues from steam coal and metallurgical coal. With metallurgical coal prices hitting the floor and outlook for steam coal looking bleak, the stock has taken the beating.
Arch Coal (ACI) has lost 30% since the start of the year. The company has a considerable presence in the high-cost Appalachian region. It derives significant part of revenues from metallurgical coal. Metallurgical coal prices are near an all-time low due to current overcapacity hampering the stock prices of ACI.
Peabody Energy (BTU) and Cloud Peak Energy (CLD) have seen a relatively lower drop at 16.2% and 6% year-to-date (or YTD), respectively. Peabody Energy, although it’s affected by the low coal pricing and bleak outlook, has maintained a better financial profile than its peers like ANR and ACI. Also, the company doesn’t have major exposure to metallurgical coal which has caused the ANR and ACI stocks to drop. In contrast, Cloud Peak Energy (CLD) has a presence in steam coal which it mines from low-cost mines in the Powder River Basin. With better cost structure and balance sheet position, the company’s stock has performed better than its peers. To learn about the trend and outlook on coal prices, continue reading the next section in this series.